
Online Bonus
Eleven Ways to Teach Kids About Money, Especially
Right Now!
Posted 10/2008
Financially speaking, it's a
tough time to be a parent. With economic turmoil reaching the boiling
point and many companies freezing any extra spending, American
families are more strapped than ever. So if you're feeling guilty
because you can't buy your child that video game system he desperately
wants for Christmas, or you're asking him to choose between playing
recreation basketball or taking karate lessons this winter, Eric
Tyson has one word for you. Don't. In fact, he says, now is the
perfect time to teach your kids some valuable financial lessons.
"Kids are surprisingly aware of what's going on in the world," says
Tyson, author of Personal
Finance For Dummies, 5th edition . "And
if they don't know that times are a little bit tough and Mom & Dad
are having to watch their spending, it's time to tell them. Sheltering
kids from financial realities does them no favors."
Indeed, the opposite is true, says Tyson. A good grasp of personal
finance is one of the most valuable life skills a person can have.
And while previous generations may have been raised with the constant
admonishment that "money doesn't grow on trees!," too
many of today's parents neglect that lesson. It's time to change
that—and the economic crisis we're in now provides a great
incentive for doing so.
"In many ways, a long-term financial slowdown can be a blessing
in disguise," admits Tyson. "It leads families to make
a budget and stick to it. It forces them to be conscious about
how they handle money. That's good for kids. It shows them how
the world is supposed to work."
Ready to get started? Tyson offers the following helpful hints:
Tell them the truth
Kids are perceptive. If you've been acting
anxious and on edge lately, they've noticed. Rather than let them
wonder why Mom & Dad are working so much lately or constantly
talking about money, explain (on their level) what's going on in
the family's financial world.
"Obviously, you don't have to get into the details of your
stock portfolio," says Tyson. "But you can explain that
what's going on in the economy means some changes will have to
be made at home. For instance, they may have to understand that
the holidays will be leaner this year, or that the annual ski trip
may not happen. Helping them understand what it all means will
lessen the anxiety they feel as a result of seeing their parents
worrying over money."
Explain to them how much things cost
Some parents are surprised
to find out that their kids don't have a very good grasp on what
things cost. A great hands-on way to open their eyes is to take
them on a "money tour" around the house. For example,
kids might not understand that hot water costs more than cold water,
or that bumping up the heat results in higher power bills. This
exercise will teach them how they can conserve and thus help the
family save money. You can also pile up all of the bills for the
month and have them look at the amount on each one. Show them what
the family's cost of living is and again reiterate the areas where
they can play a part in reducing the costs.
Realize that kids learn what they live
It may sound like common
sense, but you—Mom & Dad—are your kids' most influential
teachers. When you ring up a barge-load of credit card debt, take
out exorbitant mortgages or car loans, and fail to save anything,
that's what your kids come to see as normal. If you are modeling
unhealthy financial habits, you can't realistically expect your
kids to "do as I say, not as I do."
"We're seeing now what irresponsible spending does to the
economy as a whole," says Tyson. "The results for you
as a family will be just as significant. Adults who are extravagant
with money and fail to save for the future can expect to raise
children who are accomplished spenders and poor savers. Be honest
with yourself about the powerful money messages you're sending
your kids. If your financial habits are poor, overhaul them now.
You owe it to your kids."
Deprogram them
Kids are constantly bombarded with information
about what things cost, whether it's the fancy sports car they
like or the wardrobe of their favorite athlete or actor, not to
mention the 40,000 commercials that the American Academy of Pediatrics
estimates the average American child sees each year. What they
aren't bombarded with is knowledge on how to manage money effectively.
And while schools are increasingly incorporating money issues into
the existing curriculum, the broader concepts of personal financial
management still aren't taught. Frightening though it may be, some
schools rely on free "educational" materials from the
likes of VISA and MasterCard!
"These credit card titans provide materials that implicitly
and explicitly support carrying consumer debt as a sound way to
finance significant purchases and living expenses," says Tyson. "In
fact, VISA and MasterCard school-supplied resources endorse spending
upward of 15 to 20 percent of one's monthly take-home income to
pay credit card and other consumer debts! Explain to your kids
that such spending puts a lot of money directly into the credit
card companies' pockets, so of course they're going to offer that
advice...but that smart people don't listen to it."
An allowance is a great teaching tool
You don't have to break
child labor laws to find great ways to help your kids earn their
allowance rather than just have it handed over to them. A well-implemented
allowance program can mimic many money matters that adults face
every day throughout their lives. From recognizing the need to
earn the green stuff to learning how to responsibly and intelligently
spend, save, and invest their allowance, children can gain a solid
financial footing from a young age.
"A great time to start is when your kids reach the five-to-seven
age range," says Tyson. "Start them on some household
chores, and explain to them that they will be paid for their work.
Of course, the size of the allowance should depend, in part, on
what sorts of expenditures and savings you expect your child to
engage in and, perhaps, the amount of 'work' you expect your child
to perform around the house. I recommend paying $0.50 to $1.00
per year of age. So, for example, a six-year-old child would earn
between $3 and $6 per week."
Start them saving and investing early
It's never too early to
start saving, and the sooner you can instill the importance of
saving money into your kids the better. After they start earning
an allowance, have your kids save a significant portion (up to
half) of their allowance money toward longer-term goals, such as
college (just be careful about putting money in children's names
as doing so can harm college financial aid awards). Tyson recommends
that children reserve about one-third of their weekly take for
savings. As they accumulate more significant savings over time,
you can introduce the concept of investing.
"Rather than trekking down to the boring old local bank and
putting the money into a sleepy, low-interest bank account, I prefer
having kids invest in mutual funds," says Tyson. "Another
option is for kids to buy individual stocks. Kids can learn more
about how the financial markets work and understand stocks better
by sometimes picking individual stocks rather than using funds.
Just be careful to keep transaction fees to a minimum and teach
your kids how to evaluate a stock and its valuation and not simply
buy companies that they've heard of or that make products they
like. The money they are able to save and invest will be a huge
help to them later on in life."
Reduce their exposure to ads
The primary path to reduced exposure
to ads is to cut down on TV time. When kids are in front of the
tube, have them watch prerecorded material. You can direct the
television viewing of younger children, in particular, toward videos
and DVDs. And for older kids, if you use digital video recorders
(DVRs), such as TIVO, you can easily zap ads. But when an ad does
sneak under the radar and set the kids to begging, address it.
Explain to your kids that there's never a good time for frivolous
impulse spending—but it's especially harmful when money is
tight.
"Invest the necessary time to teach and explain to your kids
that the point of advertising is to motivate consumers to buy the
product by making it sound more wonderful or necessary than it
really is," says Tyson. "Also explain that advertising
is costly and that the most heavily promoted and popular products
include the cost of all that advertising, so they're paying for
it when they buy those items."
Find entertaining ways to teach good money habits
You'll probably
face an uphill battle when teaching kids about personal finance.
That's why it's so important to find entertaining ways to instill
good financial habits in them. For younger kids Tyson recommends
age-appropriate books like The Berenstain Bears Get the Gimmies.
For late-elementary-school-aged kids, Quest for the Pillars of
Wealth by J.J. Pritchard is a chapter book that teaches the major
personal finance concepts through an engaging adventure story.
You could also get them a subscription to Zillions, a kids' magazine
from the publishers of Consumer Reports, which covers money and
buying topics.
"Another great opportunity to teach your kids about personal
finance and get to spend quality time with them in the process
is through board games," suggests Tyson. "Monopoly and
Life are two games that are very effective at getting your kids
to think about the best way to manage money and plan whether they
should spend or save."
Teach them how to shop wisely
Family shopping trips, whether
for groceries or something else, are likely to be your kids' first
encounter with spending. They'll see you make decisions based on
what the family needs, maybe see the occasional coupon used, and
will observe how you pay. These trips are a great time to teach
them lessons about money and the value of product research and
comparison shopping.
"Take them to the mall and ask them to pick out three pairs
of shoes that they really like without looking at the prices," suggests
Tyson. "Chances are they'll come back with at least one expensive
pair and at least one affordable pair. This is a great way to show
them that to really like something it doesn't have to cost a lot
of money. Demonstrate how to identify overpriced and shoddy merchandise.
Finally, show them how to voice a complaint when returning defective
products and go to bat for better treatment in service environments,
two additional tasks that are part of being a savvy consumer."
Introduce the right and wrong ways to use credit and debit cards
Those
plastic cards in your wallet offer a convenient way to conduct
purchases in stores, by phone, and over the Internet. Unfortunately,
credit cards offer temptation for overspending and carrying debt
from month to month. Teach your kids the difference between a credit
and debit card, explaining that debit cards are connected to your
checking account and thus prevent you from overspending as you
can on a credit card.
"Explain to them that credit cards should be used sparingly
and then practice what you preach," says Tyson. "Wean
yourself off of using your credit card, and tell your kids why
you've decided to do so."
Encourage older kids to get a job
An allowance doesn't have to
be the only way for your kids to earn money. Your child's initial
exposure to the work-for-pay world can start with something as
simple as a lemonade stand. Depending on age, he or she might do
yard work for neighbors or offer babysitting services. And the
fact that we're in a recession makes it all the more appropriate
for older kids to "help out" by getting a part-time job—especially
to fund unnecessary purchases like DVDs or cool clothing.
"I had an extensive newspaper route for a number of years,
and I cut lawns and did other yard work during high school and
college summers," says Tyson. "By holding down such jobs,
kids can learn about working, earning, saving, and investing money.
It also provides welcome relief for parents to not continually
be the source of spending money. Working outside the home does
raise some safety issues, so by all means be involved in ensuring
that your child has a safe work environment."
Besides the learning opportunities it presents, there's another
positive to the current financial crisis, says Tyson. It forces
families to be more thoughtful about how they spend their time—and
this often leads to the stunning realization that money really
doesn't buy happiness.
"Often, the pricey toys we buy for ourselves and our kids
and the lavish vacations we take are simply distractions from the
people we love," he says. "They send the message that
it's necessary to spend a lot of money in order to have a good
time. It's not, of course. The best things in life—friends,
family, quiet evenings at home just being together—really
are free. Sometimes it's good to be reminded of that."
About the Author:
Eric Tyson, MBA, is one of the nation's best-selling
personal finance book authors and has penned five national bestsellers.
His Personal Finance For Dummies (Wiley) won the Benjamin Franklin
Award for the Best Business Book of the Year. He is also the
author of Investing
For Dummies, 5th edition and
coauthor of Home
Buying For Dummies, 3rd edition and Real Estate Investing for Dummies
,
among other titles.
Eric is a former columnist and award-winning
journalist for the San Francisco Examiner. A dynamic and provocative
speaker, he has spoken at many corporations and nonprofits. His
educational background includes a bachelor's degree in economics
from Yale and an MBA from the Stanford Graduate School of Business.
|