August 2002
Teaching Your Kids about Money
Amy E. Gibb, MBA, CFP
When I was 18, my Father called me at college and told me it was time for me to buy my own car insurance. That was fine, but I had no idea what to do next. I spent the next couple days in a failed attempt to get insured. Frustrated, my Father put me back on his insurance. I now know that if he had spent the time to teach me how to get insurance, we would both have been better off.
Don't you wish that your parents had taught you more about money and financial matters? How many of us have learned by trial and error. "Money" discussions are as popular as "Sex" discussions between parents and children. We don't take the time or are embarrassed to talk about it. If you want to do better with your kids, here are a few tips on how to teach kids about Money and what to teach them.
The Basics
For young children you start with the basics. Teach them about coins and bills
and that they have different values. You'll be surprised how quickly a 4-year
old will learn that silver colored coins are worth more than pennies. Show them
how we use money to buy things. Have them participate in making purchases and
receiving change. Give them some coins of their own and show them how to save
money in a jar or piggy bank. Talk to them about how you earn money to buy things
like food and toys.
The Skills
The most important skills your child can learn about money are: Delayed Gratification,
Conservation, Choices, and Responsibility. This is where
we fall short in teaching our children. We are embarrassed to teach our children
things that we don't do as adults.
I asked my 6-year-old son Jacob to help me give advise to kids and parents about money. He said, "Save it, and you will be able to have more money to buy more expensive stuff that you want. I am saving for a PT Cruiser, but they might want to save for something less expensive. Once you get going, it is pretty easy."
"The Skills" stage requires that your child has a chance to practice and experience these four skills. Between 4 and 7 years of age start your child on a weekly allowance, about $1-$5 a week. Their allowance should be enough that after a week or two of saving they can afford to buy a small toy. This will teach Delayed Gratification.
An allowance should be paid on the same day and for the same amount each week. You should help your child save their money in a jar, purse or piggy bank. Teach them to be careful with their money and always put it in a safe place right away. This teaches Conservation.
You as the parent should stop buying treats or toys for your child when they ask and stop giving them extra money. They should bring their own money to the store if they are going to buy something. If they have no money saved, they can't buy anything.
You should allow your child to spend and squander their money as they choose. They will experience the discomfort of wanting something and not having money. They will also discover the satisfaction of saving for and getting what they want. Expect mistakes. If your child never has an uncomfortable experience around money they aren't learning. Lost money, bad purchases, and regret are all part of the process. You are teaching your child about Choices and Responsibility
Open a savings account for your child and get them in the habit of setting some money aside for bigger goals and purchases. My 6-year old son wants a Silver PT Cruiser when he turns 16. We have posters on his wall of the car he wants and it motivates him to put some money in the bank from time to time. He has already saved $100 and he is very proud of his bank statement.
The Real World
Give your child as much money experience as possible. Don't worry that you don't have all the answers or aren't perfect, just start teaching and sharing. When you child is 12-15 years old you should put the money lessons in high gear. Teach them how to write checks, balance a checking account, and manage credit cards. You might have them pay the bills for you and grocery shop on a budget. Let them see your bills, your paycheck, your bank and your investment statements.
Explain to your teenagers what things cost, how to budget and how to save.
Talk to them about mortgages, loans, insurance and taxes. Explain to them how
to buy a car, rent an apartment, and keep their credit clean. Have them meet
your Insurance Agent, CPA and Investment Advisor. Take them with you when you
have your taxes done. A word of warning: Avoid giving your teenager or college
student a credit card. Credit cards are the cause of grief for many young adults
and their parents. They can lead to high debt, ruined credit, and bad spending
habits. Hands on credit card experience can wait until your child has a full
time job and is fully financially independent.
If you follow this advice and give your children a head start in their financial
education, not only will they be better off, but you might be too. I am looking
forward to getting a ride in Jacob's Silver PT Cruiser about 10 years from now.
Amy E. Gibb, MBA, CFP
President
Money $ense
Amy@MoneySenseSolutions.com, www.MoneySenseSolutions.com
303.494.5362
Financial Advising for individuals and business owners
"Money isn’t everything, Managing it is"
Amy E. Gibb, President of Money $ense specializes in Bookkeeping Services and Financial Advising for small businesses and individuals. She may be contacted at 303.494.5362, or for more information go to www.MoneySenseSolutions.com.