How much money have you spent this past week? Did you even keep track? How many times did you go out to eat? Shopping? Movies? When you see something in the store that you “have” to have, do you buy it right away with the help of your friend Mr. Visa, or do you wait and save up enough money so you can pay in cash?
I am not judging you. You are an adult, and you can make your own decisions. But now is the time to ask the hard questions. Before it’s too late.
We should all take a closer look at our spending habits. There are many reasons to evaluate our financial future, but for the purposes of this discussion, we need to examine our checkbooks and bank statements for one reason only.
We are their example.
Are you raising greedy, consuming, little monsters who care only about getting whatever they want when they want it?
Do your kids understand the concept of money? Do they understand its value or the concept of credit? There are many fiscal elements that must be discussed with your children over the course of their formative years.
You may be thinking “Why do I need to teach my kids about money? My parents never taught me about money.” Stop right there. My parents never taught me about money. And how financially stable and economically savvy would you consider yourself to be? Unfortunately, most of us could not answer that question with 100% confidence.
Consider these startling statistics (www.daveramsey.com):
- 54% of parents rated their teenager’s knowledge of money management as either “good” or “excellent,” but 78% percent of the children of those respondents rated their own knowledge of money management as merely average or even poor. (Capital One and Consumer Action, 2003)
- Only 26% of 13-21 year olds surveyed said that their parents taught them how to manage money. (JumpStart Coalition for Financial Literacy)
- The fastest growing group declaring bankruptcy is young adults, ages 20 to 24. (Alejandro Cabezut, 2004)
- 83% of adults are unaware of the resources available to help them teach children practical money skills. (Visa USA, 2003)
- Over 80% of undergraduates have at least one credit card and nearly 50% of college graduates carry four or more credit cards. According to the Department of Education, the average balance carried by these students is more than $3,000. (Senator Chris Dodd, CT)
It’s obvious that we are not teaching our children how to handle money. We teach them the value of a penny, nickel, dime, and quarter and how to add and subtract, but then we leave the rest to “life experience.” From personal experience, I know that doesn’t work. I married very young and left the house with very little knowledge about money, budgets, credit, interest, and credit scores. A better understanding of money would have saved us from some hard times in the early years. My husband and I want to prepare our kids with knowledge, experience, and financial wisdom that will hopefully prevent some of those college-aged monetary slip-ups.
The number one important thing to remember is this: Teaching your kids about money is YOUR responsibility. 85% of high school students are not getting any school-based personal-finance education. There are many electives (consumer math, economics, etc.), but these courses are often not required in our schools. You have to be intentional about demonstrating these concepts and, ideally, modeling by example.
There are so many resources available for parents today. Dave Ramsey is the best-selling author of More Than Enough, Financial Peace, and The Total Money Makeover. In addition to being a best-selling author, Ramsey hosts a radio program (The Dave Ramsey Show) on 450 different radio stations each week. He is also the creator of Financial Peace University, a program designed to help families establish budgets, save for retirement, and get out of debt. He has a ton of information on his website as well as an entire program for kids, including Financial Peace Junior.
Jean Chatzky, Financial Editor for the Today Show, shares her views on how to raise your child to be money smart (view the video segment here). A brief overview of her recommendations is broken down into age categories:
Ages 5-9: Teach your kids that money is a LIMITED resource. Make sure they have a little money, can spend it, and will hopefully buy something they will regret. DON’T bail them out. They won’t be able to recover the money they spent, and will learn a valuable lesson from that. Also teach them the importance of saving money. Force them to save, and then match what they save for positive reinforcement.
Ages 9-11: Teach them about VALUE. Take them grocery shopping with you and have them help you look for the better buy. Which cereal is on sale this week? Allow them to clip coupons and explain the differences between name brands and generic.
Ages 11-15: Teach the value of WORK. Working kids become more financially sound adults. Allow them to work for money and give them an allowance in return. Mowing lawns, raking leaves, paper routes, concession stands, babysitting, and cleaning are all great ways to start working. Teach them the key concepts related to credit cards versus debit cards. Get them their own debit card and give them their allowance electronically.
Age 15+: Take the time to begin their COLLEGE search. Make sure they understand how much they will have to borrow and have them figure out their loan monthly repayment plan after they graduate. Compare and consider the price ranges of different college choices.
My daughter is five years old and we are just beginning to talk about money. She still has a very ambiguous understanding of money; it’s not important to her right now. I’ve read on various websites that the recommendation for an allowance is $1 per the age of your child per week. So that means I would give my daughter a $5 per week allowance. For us, that’s a bit too extreme, especially since she doesn’t care about money at this point.
Violet receives a weekly allowance of $1. And it is not money that is freely given. It is more of a commission based on the completion of her chores. I’m a firm believer that if a child receives an allowance (or whatever word you choose to use), it’s because they are contributing to the daily household responsibilities. No chores, no money.
She is required to divide her money into three separate categories – Spend, Save, Give. You can buy these cute little pig banks from Dave Ramsey, or you can go to the Dollar Tree Store and buy them for just $1 each (which is what I did). Clear containers work best so your child can see their “growing wealth.” Violet has to save 40% and give 20% of her weekly allowance. So that means she saves 40 cents, gives 20 cents, and can spend 40 cents. Violet gives to our church, but there are many charitable organizations available. Discuss with your child what works for you. Giving in itself is a wonderful life lesson that often pays dividends that can’t be measured in dollars and cents.
When you dole out the weekly allowance, make sure you have the appropriate denomination so your child can divide their loot into whatever categories you designate. That means I must have a lot of change on hand every week. Especially dimes!
Some other resources we have enjoyed with our little ones include:
- Exact Change – a card game that helps young children learn to count money.
- Berenstain Bears and the Trouble with Money (a definite classic we read over and over again!). There are also other Berenstain Bear books that deal with the same issues: Trouble with Chores, Dollars and Sense, Count Their Blessings, Trouble with Things, Think of Those in Need
- You can also access many Berenstain Bear books as videos on You Tube, including the Trouble with Money
- The Quiltmaker’s Gift by Jeff Brumbeau – an excellent book about acquiring happiness by giving to others (emphasis on how unimportant “things” in our life really are)
Some of you may have older kids and are thinking It’s too late! No, it’s never too late. If you have teenagers at home, begin with a debit card. Move on to teaching them about credit cards and interest rates. Here are two examples for older children (even college-aged or married children!):
1.) You decide to purchase a big screen T.V. at your local electronics store. The purchase price is $1,000 for a 60″ that you have had your eye on. You sign up for a credit card and agree to the terms of 19% APR or higher. Once you receive your first bill, you realize the credit card company only requires a minimum payment of $25 per month. At this pace, it will take you five years to pay for the television. After interest you will spend almost $1,600. And this is also assuming that you didn’t use the credit card for anything else in the meantime.
2.) On a larger scale let’s look at a mortgage. You find a house that would make a great first home and is priced at $80,000. You take out a 30-year mortgage at 5% assuming average credit. Your monthly payment before taxes and insurance is $430 per month. However, after the 30 years you will pay the bank $155,000 which is almost DOUBLE what you paid for the house!
It’s always ideal to pay in cash for anything you purchase. We live in an immediate gratification society that exists primarily on credit which won’t even remotely benefit our kids in the long run. However, it’s also important to teach your kids about what a credit score is and how crucial it is to establish good credit early on. The most common way to do this is through borrowing money. My husband works in finance and scrutinizes credit scores on a daily basis. His observations have led him to reinforce a future strategy within our household. Our plan is to assist our kids with purchasing something while they still live in our home and before they go to college. We want them to establish a credit score while we have some control and without them signing up for multiple credit cards. It’s better to co-sign for them on a small loan for a relatively inexpensive car while they live in your home, than to co-sign for them on a larger purchase later in life only to have the deal fall through because your son or daughter just can’t handle the payments. And you’re stuck paying for a house or car you never intended to buy. As a co-signer, your credit is now officially tarnished, and it could be years before you bounce back. Not to mention the 30-year old who now resides in your basement.
Setting up a bank account is another important step to in the fiscal development of your children. We are planning to do that in just a couple of days so Daddy can be involved as well. Make this a momentous occasion so they realize that understanding the value of money and how to handle money is a significant part of their journey into adulthood.
Bottom line: Don’t be a money tree. Try to minimize the occurrences in which you just give money to your kids because they ask for it. That’s not the real world and it’s definitely not life. Teach them the value of earning their own money. Hopefully some of the hard lessons can be learned under your roof instead of a college dorm room or in bankruptcy court. A credit score in the tank is a very difficult thing to salvage. Those bad financial choices can affect your life for decades. Be proactive and help your kids by training them in sound fiscal practices. However, that doesn’t mean buying everything for them or bailing them out of every bad money decision. Give them the tools, help them along, and you’ll both be better off for it.
Do you have any financial training resources or ideas that have proven successful for your family?