Teaching Kids About Money
by Anthony Braico
Associate Vice President - Investments, Advest Inc.
Avon, CT (860) 674-9211

For a lot of families, money is one of those topics discussed in hushed whispers, or not at all. It can be difficult enough for spouses to talk to each other about money, let alone talk about it with their kids. By leaving youngsters in the dark about family expenses and how they’re paid, we may be cheating them of one of their most valuable life-lessons. It’s time to rethink our approach to kids and money.

As much as possible, experts recommend that you be frank and forthcoming (although age appropriate) when discussing money with your children. Granted, you may not want to give them concrete income and investment figures, but it is important that you share with them your philosophies about money. And one of the best ways to do that is to let children handle money regularly.

Pre-school Children: Start laying the ground work. When you’re at the store, give young children a modest amount that they can use to buy a small item and learn about making change. With toddlers, you can also play sorting games to teach them denominations of money.

Five to Ten-year-olds: Experts say it’s appropriate to start an allowance between ages five and seven. The weekly amount is up to you, but help them pick a percentage to save regularly, then make sure that amount is always set aside. You could have them use three jars labeled "Spend," "Save," and "Share." When enough money accumulates in the "Save" container, take the child to open a bank account. You may even want to consider doing a matching contribution to encourage long-range saving. The "Share" jar could be for gifts or charities or both.

Let kids save for a special item. Perhaps you could put a picture of the item on a fourth container. Then when the needed amount is saved, create an event out of taking the child to buy it. It will help the youngster appreciate the discipline it took to save up for it.

Pre-teens and Early Teens: There are a few money-related activities to use with this age group. Instead of fighting the brand-name battle with your kids, decide how much you want to spend for their next wardrobe, then hand your youngsters that amount of money with the understanding that they can use it to buy what they want (within reason). But when the money’s gone, it’s gone. You have to stick to your guns on this point or the whole plan falls apart.

Initially, most youngsters are wide-eyed at your giving them so much money at once. But when they start making their selections, they realize how little it will actually buy. Your children may surprise you and give up one designer item in favor of two of a lesser name. Older children can do odd-jobs around the neighborhood such as lawn mowing, baby-sitting, pet care, etc. to earn money for extras they want.

Older Teens: With this age group, you can start discussing long-range goals (if you haven’t all ready). Talk about the fundamentals of investing, and introduce them to mutual funds as a means of participating in the stock market. But explain the risks compared to a bank savings account, pointing out that past performance is no indication of future results. Consider letting responsible teens open a checking account. This is a basic life skill that takes a little practice, and it’s great if your kids can get the hang of it while still under your supervision. Allowance Parameters Nearly all experts agree, do not tie allowance to regular household chores. Chores go along with being part of a family. No one pays you to do chores, so children should not be paid for routine chores either.

Avoid using the allowance as a reward/penalty system. In order for children to get used to handling money, they need to practice with a steady income. Sit down and discuss the allowance – when it will be paid, how much, and what you expect it to cover. Review and adjust the allowance at least once a year, giving consideration to the child’s changing age, maturity and needs. Don’t use money as a bribe for good behavior. Avoid paying for good grades, or withholding money for bad grades. Experts say this practice can undermine a child’s appreciation of his or her own success and failure, and can cloud the learning experience. Family Matters Make children aware of what it takes to run a household. Let them participate in bill paying, whether its letting young children sort bills by date, or letting older children actually balance a checkbook.

Choose a family activity or trip that everyone can save for, then discuss ways in which each family member can help. And if there are irregular jobs to be done, offer your children the opportunity to earn extra money. Tell them that it is a fair job for fair pay, and allow them to turn it down if they choose.

Encourage charitable giving. Children learn well by example, so let them see how and when you give of your time and money. Consider a family gift. Collect the various appeals you get in the mail, and then, once or twice a year, sit down with your kids and discuss the merits of each. Let them pool their "Share" money with yours to support worthy causes they select.

Money is an intrinsic part of life in the modern world. Don’t keep your children in the dark about it. Help them avoid the pitfalls money can generate by doing all you can to prepare them to handle money as adults. Teach your children about money while they’re young.