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9 tips for raising money-smart children

You try to raise your children right and teach them values, and while morals and ethics are important, it's important to be sure children learn about money and finances. Here are some tips for parents to help their children learn about managing money.



Tips for teaching children about money

Get them interested early. When your children are very young (age 3 or 4), show them how to tell different coins apart. Then give them a piggy bank to store up their change. Piggy banks are a tangible place to keep their money safe, and they can see, hear and feel how the bank fills up.

Make saving a habit. Make a house rule of saving a percentage of income, whether it's birthday money from relatives, earnings from a neighborhood lemonade stand, weekly allowance or a part-time job.

Open a savings account in a child's name. A bank savings account can show kids how their money can earn money on its own -- through compound interest. Give kids a compound interest table (available at most banks) to let them anticipate how their money can grow. Be sure to plan regular visits to the bank, too.

Encourage goal setting. Have your kids write down their wish list, along with a deadline -- a skateboard by the end of the summer, a bike by next year. Visualizing may give kids the added motivation they need to save. You might also contribute a matching amount every time they reach a certain dollar amount in savings by themselves.

Give regular allowances. Allowances give children experience with real-life money matters, letting them practice how to save regularly and plan their spending. Of course, you should determine the amount of allowance that you think fits, for example an amount equal to half their age per week.

Help plan a budget. Have kids write down what they'll buy during the week and how much each item costs. Then write down their weekly income. If it doesn't add up, they'll have to prioritize their "needs" and their "wants."

Encourage money-earning ventures. To earn money beyond their weekly allowance, suggest that kids find creative ways to make money -- doing special household chores or seeking jobs in the neighborhood such as raking leaves, mowing lawns, pet sitting or shoveling snow.

Show children the effects of inflation. To show your kids how prices have gone up over the years, take them to the library to look up ads -- for movie tickets, bikes, sneakers -- in the newspaper archives. Try finding the year they were born. Your kids can also use their math skills to see how much items they're saving for will cost in the future. For example. a bike that costs $50 today might cost $60 in five years, with 4 percent inflation.

The ultimate step to investing: stocks. For a fun way to teach kids about stocks and how they work, make a game of it. Have everyone in the family pick their favorite company -- McDonald's, The Gap, Walt Disney, Nike -- and "invest" $100. If you own mutual funds or variable annuities, you can let your kids find a name they know in the annual reports. Then show your kids how to keep track of the stocks' daily progress through the newspaper's financial section. Give a prize to the person whose stock goes up the most over each month.

Source: MFS Investment Management's corrections policy
-- Posted: Feb. 5, 2004
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