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Educating Kids on Money

Educating Kids on Money

Parent Tips > Legal, Financial & Real Estate > Educating Kids on Money

Allowance: Teaching our kids about spending & saving

Allowance: Teaching our kids about spending & saving
With children it is important to differentiate between needs and wants and how spending on little things can really add up.


The American Bankers Association offers these tips for parents to foster the savings habit in their children:


*Give them an allowance with the understanding that part of it goes into their own savings -- a first step toward learning to budget.

*To make their savings visible and real, have them build up savings in a piggy bank. Then help them open their own bank savings account, and have them make deposits each month.
Use their monthly statements or the record in their savings passbooks, to show them how their money is multiplying.

*For every dollar your children earns, encourage them to spend 25 cents on what they want or need now, put 25 cents away for a bigger-item purchase later and save or invest the rest. (That's a 50 percent savings rate!)

*Make savings and investing fun. Give your children play money to "invest" in stocks they can track in local newspapers. If the stocks go up, pay them in more play money; if the stocks decline, they pay you.


Cultivating Your Kids' Growing Interest in Money

Cultivating Your Kids' Growing Interest in Money
Just as money doesn't grow on trees, kids don't grow up to be good money managers on their own. Raising money-smart children starts with parents talking to their young children as soon as a child takes an interest in money and continuing that dialogue through the college years.

After all, the more exposure to money issues children receive when they're young, the better equipped they'll be when they're older and the financial "stakes" are greater. The ages of 5 or 6 are a great time to start the financial education and get them thinking about money. Consider the following strategies that can help illustrate the fundamental principles of saving and spending, and lay the groundwork for a lifetime of healthy financial habits for your kids:

Start an allowance and Savings. While teaching and encouraging your kids to save is important, saving us a behavior best learned by doing. When your child can count money and show awareness of how money is used, start a small allowance to introduce them to the concept of saving and spending, Have your child save money in a special piggy bank or wallet, and discuss what amount needs to be saved and what types of purchases can be made with the money earned. Also, stick to a regular schedule - once a week payday may work well.

In addition to saving their allowance, impress upon your child how they should regularly put away part of their gift money and income from jobs.

Remember to count their saved money with them periodically, and discuss how close they're coming to achieving their savings goals. It's a good idea to give you child a "raise" as they age, or to reward their growing ability to manage their allowance each year.


Open a savings account. As your child develops more understanding, take them to your bank and open an account. Many banks offer learning activities and incentives designed to help children learn the basics of managing money. Don't forget to teach your child about the magic of compounding interest. Show them the monthly bank statements and point out how much "free money" has been earned.

Keep in mind that sometimes it's easier for kids to save when there is something in particular they would like to save for. Help your child decide what that item might be, how much it will cost and the amount they're comfortable saving toward it.

Capitalize on teachable moments. Look for every day opportunities to demonstrate how money works and good financial behavior. For example, when you go the bank or ATM machine, explain how savings and checking accounts work. When shopping, point out how you're paying for items with a debit card, as opposed to a credit card, because the debit card uses cash you already have in your bank account.


And when you're at the grocery store and hear the popular childhood anthem, "I want that!" explain how you're at the store to buy only certain items and that there's only so much money to go around in the family budget. The fact is, if you spend money on everything you want, you may not have enough to cover what the family really needs. Explaining how you can be happy with what you already have is another important lesson to instill from a very young age.


Teach smart shopping. The best way to encourage sound spending habits is to model them. When planning shopping trip, get your children involved in making a shopping list and sticking to it. This will teach them to avoid tailing into the trap of impulse buying.

Use educational resources. For parents, kids and even teachers looking for other tips and ideas on how to instill the importance of being money smart from a young age, the Northwestern Mutual Foundation has created a website to help families teach children about money management. The updated website, features interactive games for both kids and parents, as well as lesson plans for teachers to help children of all ages to learn how to use money wisely, and covers everything from saving and spending to stocks, bonds and more, as well as a new part for parents to see just how they measure up in their finance knowledge.

Just like all important life lessons, teaching children to responsibly manage money - earning, tracking, spending, saving, borrowing and investing - takes time and effort. Take the time today to get your kids off on the right financial foot. It's an investment you'll never forget.



Money Skills Kit

Submitted By: Paul Richard

By Paul Richard, Executive Director - Institute of Consumer Financial Education

For Parents and Grandparents "Money Skills Kit" 18 Ways To Teach Children or Grandchildren The Value of Money


1) As soon as children can count, introduce them to money. Take an active role because repetition and observing others are the two methods they learn by.


2) Communicate with children, as they grow, about your values concerning money and how to save it, make it grow, and most importantly how to spend it wisely.


3) Helping children also learn the difference between needs, wants and wishes. This will prepare them for making good spending decisions in the future.


4) Setting goals is a fundamental concept to help young people learn the value of money and also how to save. People, young or old, rarely hit targets they don't have. Nearly every toy or other item children ask their parents to get for them can become the object of a goal setting session. Benefits of saving to achieve the goal is an important aspect and provides built-in motivation. Goal setting for good grades, toys or savings, helps children learn to become responsible for their own futures.


5) Indoctrinate your children to accumulation (or savings) instead of spending( or consumption). Explain and demonstrate the concept of earning interest income on savings. Consider paying interest on money saved at home. Have children help calculate the interest so they can learn and see how fast money accumulates through the magic power of compound interest. Later on, they will also realize that the quickest way to a good credit rating is a history of regular successful savings. Some parents offer to match what children save on their own. "It is a time tested way to get them started," says Kiplinger's Personal Finance Magazine. I read of one couple who had their children pay one-half the cost of all their playthings over the years. They handed it back to them with interest at their children's college graduation. It averaged over $2,000.


6) When giving children an allowance or income, give the money in denominations that encourages saving. For example if the amount is $5, give out five $1 bills and encourage at least one be set aside in savings. (Just saving $5 a-week at six percent interest compounded quarterly will total about $266 in a-year, $1,503 in five years and $3,527 in ten years.)


7) Introduce U. S. Savings Bonds to children. Take them to the bank when you make the purchase. Bonds are still a good value, cost one half the face value, earn interest and in some instances, will be tax-free if. used for a college education. Perhaps more importantly, when given as a gift, they will not be immediately spent - and this will reinforce savings and goal setting lessons.


8) Take the youngsters with you to a credit union (or a bank) when you open their savings accounts. Beginning the regular savings habit early is one of the keys to savings success. Don't refuse them when they want to withdraw from savings for a purchase or you'll risk discouraging savings all together.


9) Keeping good records of money saved, invested or spent is another primary skill young people must learn. To make it easy, use 12 #10 size envelopes, one for each month and a larger envelope for the year. Establish this system for each child. Encourage children to keep receipts from all of purchases and then make notes.


10) Going to the grocery store is usually one of a child's first spending experiences. About a third of our take-home pay is spent for grocery and household items. Spending smarter at the grocery store (using coupons, etc.) can save more than $1,800 a-year for a family of four. To help young people understand this lesson, demonstrate how to plan a meal, how to use planned leftovers. Before actually going to the grocery, check to see what items are on sale, what could yield a coupon savings, etc. Encourage checking store ads and comparing prices weekly. Also, the use of lists and coupons and also how to shop by the by unit price.


11) Take children with you to other stores, explaining how to plan purchases in advance and make unit price comparisons and also checking for value, quality, reparability, warranty, etc. Spending money can be fun and very productive when spending is planned. Unplanned spending however, usually results in 20-30 percent of our money being wasted because we obtain poor value with many purchases.


12) Allow young people to make spending decisions, both good and poor, and then encourage a discussion of pros and cons before more spending takes place. Encourage them to employ common sense when buying. That means research before making major purchases, waiting for the right time to buy, and employing the spending-by-choice technique which is selecting at least three other things money could be spent on, once it has been decided to make a purchase.


13) Show children how to evaluate ads on TV, radio and in print. Will the product really perform and do what the commercials say? Is it really a sale price? Are there alternative products available that will do a better job, perhaps for less cost? Just because something looks expensive, doesn't mean it represents the best value. Remind them that if something sounds too good to be true, it usually is.


14) Look into joining a credit union, if you are not a member already. They usually have a good youth program that encourages savings and reinforces what you teach at home about money. Explain to young people about the advantages of member-owned and operated credit unions - i.e. higher savings interest paid, lower borrowing costs, etc. - which is why over 57 million Americans belong to them.


15) Alert children to the dangers of borrowing and paying interest. Charge interest on small loans you make to them so they will learn quickly how expensive it is to rent someone else's money. Credit is all about, renting another's money for a specified period of time. For instance, paying for a $499 TV over 18 months, $31.85 a- month at 18.8 percent interest means it cost about $575.


16) If parents are using credit cards, at a restaurant for example, take advantage of an opportunity and explain to children how to verify the charges, how to calculate the tip ( a tip should never be calculated on the sales tax portion of the tab) and how to take safeguards against credit card fraud. Explain also how and when you plan to pay for this and other charges children have observed.


17) Be cautious about making credit cards available to young people, even when they are entering college. Credit cards have a message: "SPEND!" Some students report using the cards for cash advances and also to meet everyday needs instead of an emergency (as originally planned). Many students in that group also reported having to cut back on classes to fit in a part-time job just to pay for their credit card purchases.


18) Using a calendar, establish a regular schedule for a family discussion about finances. This is especially helpful to younger children. the time when they count their savings and receive interest on their savings. Discussion topics should include the difference between cash, checks and credit cards and also wise spending, how to avoid the use of credit and the advantages of savings and investments growth. With teenagers also discuss the effects on the economy - of inflation versus deflation - on how to economize at home, and alternatives to spending money. Some examples are borrowing an item, bartering, making it yourself, or a one-time rental or buy used, etc.


SUMMARY: Money gives people - both young and older - decision-making opportunities. Everyday spending decisions can have a far greater negative impact on your children's financial future (and yours also) than any investment decisions they (or you) may ever make. Educating, motivating and empowering your children to become regular savers and investors will enable them to keep more of the money they earn and do more with the money they keep!


Chores & Children

Submitted By: Submitted By: Patricia Sullivan, National PTA

Chores & Children

Many parents cajole, beg, or even bribe their children to help out around the house and still end up with a lawn that needs mowing, a sink full of dirty dishes, unmade beds, and a pet dog barking to go out for a walk. How can parents get the real result they're looking for: children who do their chores without being reminded or reprimanded?


Although chores are important because they teach basic life skills and help children build personal responsibility, the children and their relationships with their parents have to be of paramount importance, according to John Covey, director of home and family for Franklin Covey Company and co-author of The Seven Habits of Highly Effective Families: A Proactive Family Guide Book. This doesn't mean that children get a pass on chores; rather, parents should establish a solid one-on-one relationship with each child. This way, the parents' values and principles will be embraced by the children, and getting chores done will be a lot easier for everyone involved, he said.


"There are always two reasons parents want their children to do chores --- to get the job done and to help the children grow," Covey said. "If children don't do chores, how do they learn? How do they build personal responsibility?"


Linda K. Waite, professor of sociology and co-director of the Center on Parents, Children, and Work, an Alfred P. Sloan Working Families Center at the University of Chicago, said that sometimes parents simply need an extra pair of hands. She also said some parents want their children to learn the skills of household work, such as doing laundry, cleaning, and cooking. Others want them to learn to pull their own weight and participate in family life through teamwork and sharing.

Assigning Age-appropriate Chores

"The level of expected chores should be appropriate to the child's skill, ability, and what you need," said Frances Goldscheider, professor of sociology at Brown University in Providence, Rhode Island. But even for very young children, helping around the house allows a child to feel like a vital part of the family.


Many chores take place in the kitchen because it is the heart of the home. Covey recommends that children do the dishes, some of the cooking, and set and clear the table.

Laundry is also an important chore that children can help with at an early age. They can begin by putting dirty clothes in the hamper, or helping switch loads of laundry from the washer to the dryer. As they get older, they can learn to sort laundry and help fold and put away clothes. The last step is running the washer and dryer. By the time they're teenagers, they should be able to do the entire job themselves.



Ideas From Parents

Ideas From Parents

The whole family needs to work together to have a fun, clean and happy home, so certain chores are expected for everyone. Some chores are offered to earn money for spending. All earned and gifted money is divided into jars: 10is given to those more needy than us, 10% is saved and eventually put into their savings account, and the rest can be spent upon agreed upon items. Kids can choose to save up for something special, or to put more into savings.


Consider rewarding kids savings and giving with a parent-matching plan.


Create a "chore chart" in a monthly format. It should list what needs to be done on what days. Make it colorful and bold so kids can easily see what needs to be done each day. Dishes on Monday, picking up room daily, taking out trash on Tuesday, etc... Hang it on the wall so kids can look at it daily and know what's expected of them! Give a few chores that the child can handle, and discuss it so the child can agree to the chores (this will make them feel like they had input and give more incentive to get it done).


Clean up Idea: If you have a problem getting your kids to pick up their toys, try doing a Buy Back Box. Anything that is left out gets put in this box. Kids can earn these items back by doing chores or good behavior, etc.

Give an allowance in change, rather than in dollar bills to turn it into a math lesson. Use a piggy bank and divide that allowance into 4 equal parts: Spending, Saving, Donating, & Investing. This will make your child's first contact with money a responsible one. Allow your child to donate change to various charities and spend his money at a store where they can afford something (such as the Dollar Store). Allow your child to save for something that they want, and put the rest of the money into the bank. After a little bit of time, your children will ask how much things cost and enjoy watching their savings grow.


Offer praise, not money, for younger children (under 5) who help out around the house. Consider offering a toy per month either with or without a chore, depending on a child's age. This reduces the constant begging for new things. The toy should be within a certain price range, and should be consistent. This teaches a younger child about value and choices. Give your child the cash to pay and ask her to check over her change. Money is very confusing to younger children, so be sure to help. As your child gets older, consider assigning tasks. After a while consider paying your child for the jobs with cash.
Lemonade stands are also great ways for children to earn money over the summer and teaches them about handling money.


Age-Appropriate Activities


Ages 5-8

Ages 9-12

Ages 13-17

Online Resources
Great for kids, parents and teachers. It is packed with all kinds of tips about what to do with your money.
Moonjar is committed to creating family-based products that encourage communication and that empower children with basic life skills financial literacy & goal achievement. is a free Web site designed to help educators, parents and students practice better money management for life.

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