About Families Online

Feature Articles for June 2003

by Apryl Chapman Thomas

How often do you find yourself telling your children that ‘money does not grow on trees?’ Do you say this phrase so much that you begin to sound like a broken record, and no matter how many times you repeat it, you wonder if your children really understand?

Helping a child to develop financial savvy is one of the most important skills a parent can impart to their child. Raising financially responsible children in this day and age can be difficult, but not impossible. Even very young children can be taught the importance of money-management.

“Parents need to make a real effort to help their children learn the value of money, the power of saving, and how to plan for the future,” explains John E. Sestina, author of Managing to Be Wealthy: Putting Your Financial Plan ‘and Planner’ to Work for You. “The education can begin as early as your children ‘want something’.”

Yvette DeLuca, mother of two has conversations about money with her children all of the time.

“We have conversations like, ‘we have X amount of dollars to spend this week, do you want to purchase a certain item or do you want to save it and get another certain item next week?’ I let my girls have a say in the things we buy. But it wasn’t always this easy.

“My oldest, who is 8 years old, didn’t understand the value of money until I got tired of the ‘mommy why can’t we’ syndrome,” said DeLuca. “I took all of our monthly bills and all my pay stubs for the month and let her figure out exactly how much we had. She came back an hour later with a better understanding of money and budgets. She is a lot more understanding now of why we can’t do certain things and seems to appreciate the things that we are able to do.”

Jayne Pearl, author of Kids and Money: Giving Them the Savvy to Succeed Financially, states that some parents are extremely uncomfortable discussing their finances with their kids.

“This is something that parents need to decide for themselves and stress to their children not to share the information with anyone else. If they do choose to share with their kids at an appropriate age, it can not only be a learning experience, but an eye opener as well.”

Timing The Discussion
You might be asking yourself where and when do you start talking to your children about money. The GE Center for Financial Learning suggests that parents begin money discussions with children who are around age three. Parents can teach their children how to identify and count coins and cash using a piggy bank. Explaining the importance of good saving habits should occur when they reach the age of four or five. By the time the child starts school it is probably appropriate to start giving them a weekly allowance.

Allowance and Responsibility
An allowance can be an important tool for teaching your children money management skills. The purpose of an allowance is to teach a child how to manage their own money based on their own particular needs, wants, and goals.

“There really isn’t a right or wrong amount for allowances,” said Pearl. “The right amount depends less on the child’s age than it does on the family’s financial circumstances. I also recommend basing the amount on specific financial responsibilities that the child is expected to pay for, such as school lunches, hair cuts, entertainment, trading cards, and so on.” Pearl recommends that parents track how much money they shell out monthly on those things, figure out what it comes to on a weekly basis, add in 20-30% for savings and mad money. Parents should let their children learn how to stretch their allowances by making trade-offs; delaying gratification, and distinguishing between wants and needs. “These are all very important financial values that we all need to get on the cycle of financial success.”

The Time To Save
Once you and your children have established guidelines for allowances, you will want to introduce them to a savings concept.

“Basically, a parent should start teaching a child–at the earliest possible age–the ten percent rule,” said John Evans, certified financial planner and financial planning instructor at the University of the South in Sewanee, Tennessee. “Teach your child to save ten percent of every allowance and money gifts that they might receive. This is an easy number to find. All your child has to do is to move the decimal point one place to the left and there appears the amount to save.”

Pearl prefers incentives to get children to save.
“One idea is establishing a 401-K type matching grant, where parents match what the kids put in their saving accounts, with two exceptions. Parents temporarily stop matching when the kids withdraw, until the kids replace what they withdrew and kids can only withdraw what they themselves deposited, not the parents’ contribution.”

Be Creative
Creative ways to encourage your children to save include clipping coupons and allowing them to keep the money that was saved. Sit down with them to set saving goals that mean something to them. Clipping coupons is one way to provide incentives, while teaching the importance of smart-shopping.

“When my son was five, he told us that he wanted to go to Disney World,” said Christine Mondello, mother of two. “My husband and I told him that we would take him when he turned seven, as we felt he would be able to do more and get more out of the visit. I gave him a giant jar, cut a slit in the top, duct taped the lid on, and we both decorated the jar with the label ‘Disney Fund’ on the front. Whenever he got money, he would put a portion in the jar and give me the rest to put in his savings account. He never asked to borrow a penny.”

Every six months, Mondello and her son would count the money, write it down and tape up the jar again. Two years later, her son had saved up enough money to pay his own way to Disney, including airfare, for nine days, plus had over $300 to spend. “He had definitely seen the power of saving even small amounts. Pocket change doesn’t stand a chance escaping his fingers. His younger brother is following in his footsteps with a jar of his own.”

With a little work and understanding, you can help your children develop positive attitudes about money that will last a lifetime.

Apryl Chapman Thomas is a freelance writer and the mother of one.