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Value of money
Teaching your children the value of money
Perhaps the
most important
decision parents face regarding their children's attitudes toward money
is how to handle it!
There's a strong argument that an allowance is the best way to teach
children to handle financial responsibility. There's an equally
convincing case that nothing could be further from the truth. Whichever
is the case, before they get an allowance, children should be old
enough to count money. The key to a successful allowance is structuring
it right from the outset. Make it clear to your child what kinds of
expenditures the money is for, and that they are expected to save some
of it. Younger children between ages 7-10 shouldn't be held accountable
for items like school lunch money as part of their allowance, this is
also a idea for older kids, and has the added benefit of fewer payments
changing hands.
Some experts think parents should not link the allowance money to
household chores. Children should be expected to help out around the
house and in the yard because they are members of the family, not
because they are paid. Linking the allowance to household duties may
sap this community spirit that you are trying to engender.
Yet with children over 8 or 9 years old, giving an allowance doesn't
preclude paying them for specific chores, especially the occasional
type that you might otherwise pay outsiders to perform, such as
shoveling the sidewalk or washing the car. Why not keep the money in
the family?
Parents complain that giving their child an allowance puts the parent
in a position where their kids are often begging for a raise or an
advancement "Negotiation skills are very important skill that children
are going to need for dealing effectively with friends, teachers, and
eventually, their boss."
So instead of grimacing when your child hits you up for a raise, decide
when the time is right, and then engage them in fruitful negotiations.
Ask your child, "how long since your last raise?" Work with your child
to lay out a short and long term saving plan.
The
hardest part on allowances is how much should you increase the amount
to? A decision affected by personal values, family income, and common
sense. Don't let your child influence you by saying, what they're
friends are getting. Any normal child will bring in high figures.
Many parents like to give their children the equivalent in today's
dollars of the allowance they received at the same age. Assuming that
these parents have more or less the same means as their parents did,
this can be a comfortable solution.
When to save and when to
spend
Many
children don’t like to save?
One
way to encourage your child to develop sound money discipline is to
make savings a condition of their allowance, keep in this in mind when
deciding on a weekly or monthly figure.
This means setting a budget, which can be a challenge for people of any
age. Kids' budgets will vary widely with their needs and circumstances.
The challenge is what to do when children spend beyond their budget and
end up dipping into savings!
One approach, is to require them to save their allowance in a locked
box so that each deposit is irretrievable. Yet, as this doesn't teach
restraint and you won't always be around to oversee savings deposits.
Count
out a reasonable "salary" in play money, you can use Monopoly money,
from the game. Then, take some old bills and write the amount due on
the back of the envelope of each. Show the child the entries in each
for "date due," "minimum payment due" and "balance due," then let them
decide how much to pay each month. Make sure they reach their goal each
and every month, at least until they get the hang of budgeting!
Use the leftover money to introduce the concept of savings. The younger
your child, the more limited his or her concept of time. As a result,
younger children aren't apt to realize the necessity of long-term
savings. Indeed, for a six-year-old, long-term could mean spending the
savings this weekend. Yet other children the same age tend to have an
intuitive grasp of savings for savings' sake. Long before you give your
child an allowance, his or her savings sense will be clear from the way
he or she deals with money from the tooth fairy or from Grandma's
birthday cards.
If your child has been receiving your sage financial teachings from an
early age, older children should have no problem understanding the
concepts of long-term and short-term savings. If not, illustrate the
concepts by using goals, as with a new video game purchase every other
month. Versus a bicycle in December, or college when they are 18.
Remind of them of these goals to keep them from straying.
The more worthy and ambitious the long-term goal, the more you may want
to consider matching grants to reward your child's savings discipline.
These grants can be anywhere from 1.25-to-1 to 3- or 4-to-1, depending
on the goal and your means. Matching grants are a great way to save for
large items like computers, or even a first car.
Younger children understandably have trouble grasping off-site savings,
so the best mechanism for them is often a piggy bank for coins and a
wallet for bills. Count the money with them periodically, and tell them
how close they've come to their goals. Above all, praise their
progress.
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When your child reaches the age of 12 or 13, open a bank account.
Children of this age can understand the concept of interest rates,
especially when you demonstrate with coins to show how their money will
grow. Until they're old enough to handle a checking account, children
may take withdrawals as cashier's checks or money orders. |
The best way to encourage sound spending habits is to exhibit them.
When planning a trip to the grocery or discount store, get your
children involved in making a judicious list and sticking to it. This
will teach them to avoid the bane of all savers, "impulse buying!"
For big-ticket items like appliances, show them how to do the research:
Like reading articles and reviews, phoning stores to see if your
choices are in stock, negotiating with salesmen on the price. Going to
several places to see what's available and compare values.
Don't forget the lessons that can be learned from tipping. Studies have
shown that the quality of service received is not an important
criterion for many tippers. Instead, people often tip to impress the
waiter, or in accordance with their opinion of themselves. To ensure
that your child tips for service, go over the good and bad points of
your server with them, then arrive at an appropriate figure (e.g., 15
percent for excellent service). Make sure they understand that, while
the waiter relies on tips to make a living, poor service begets poor
tips. This attitude toward value will carry over into purchases of
consumer goods.
Show your child how to calculate the tip, add up the items on the check
and make sure the total is correct.
Helping your teenager
build credit
With all the credit-card offers coming in your child
will need some guidance.
The
typical college freshman is burdened by scholarly responsibilities,
homesickness, and self-doubt. To keep your freshman of tomorrow from
suffering the additional angst brought by their first checking account,
start them off sooner, like their junior year in high school.
Initially, keep it simple, avoiding frills and extras like overdraft
protection; they need to experience the reality of bounced checks to
understand their record-keeping responsibilities.
Many college freshmen today have credit cards, and if your kid is to be
one of them, then this, too, has a learning curve that is best
experienced under you’re your watchful eye! Before your kids acquire
their first credit cards, they need a lesson in the evils of plastic.
Tell them that this is where most individuals' finances get in
seriously trouble! Illustrate your point with interest tables that show
the damage that 18 percent annual interest, compounded over the years,
can do to their savings potential. Also, tell them that credit is a
privilege, not a right, and that if they abuse it, they will lose their
ability to get more.
After setting up rigid criteria for the use of a credit card, start
them off with training wheels in the form of a secured card, in which
the holder charges only up to a cash account kept with the issuer. This
way, they become accustomed to using the card judiciously without
getting in hock. If their purchases are sound enough, then move on to
an ordinary credit card, encouraging them to pay the balance each month
to avoid interest charges.
When your kids go out to make purchases on this card, they may be
tempted by same-as-cash purchase offers, in which buyers of items like
appliances are allowed to borrow interest-free as long as they pay off
the balance within a set period (usually six months).
Showing your teenager
how to Invest
Teaching your children the rewards of self control.
Once
your teenagers get a grip on credit, introduce them to the flip side,
"investing." After all, that's when they extend the credit and collect
the interest. Since your teens may have too much money collecting no
interest in a checking account and probably write few checks, the best
way to start is with a money-market account on which they can write
checks.
From there, introduce them to simple, set-term investments like savings
bonds and certificates of deposit. Though CD’s are best for the retired
folks. Buying a few savings bonds won’t hurt, and they can learn the
appreciation of compounded interest!
Next,
introduce them to the stock market, but not as a prelude to picking
stocks. Instead, advise them to get into some diversified mutual funds
or a solid index fund. It’s still too early for them to start investing
in stocks, wait until they are at least 15 or 16.
There are some stock investing games available on the Internet, that
can be fun and educational way to introduce a teenage to stock market.
For example, www.fantasystockmarket.com
is one, there are many others. There, anyone can sign up and run his or
her own investment portfolio -- with simulated cash, of course.
Once you get your child to understand the ups and downs of the stock
market, you've probably accomplished all that you can reasonably hope
for.
By
now, your child or should we say, young adult should have a basic idea
about handling money, and in vesting in a many of different vehicles.
Eye a helpful eye on them, and lend a hand whenever the chance arrives.
Value of money
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