abouTfamily

Money Management For Kids
By DEBBIE PETERSON

Two recent incidents made me realize that I needed to start teaching my kids about how to manage money. When my son asked for something at the store and my answer was that I didn’t have the money to buy that item right then, he responded with a question probably others of you have heard: “Why don’t you just use your credit card?” Then, my daughter wanted to buy a birthday present for her brother using her own money. She had received some money as a Christmas gift, but she didn’t know how much she had or even where she had put it.

There is a debt crisis among young people today, many experts say. One alarming statistic from the USA Today is that 19% of Americans between 18-24 declared bankruptcy in 2001. Wanting to start my kids off on the right foot at an early age, I started asking around for ideas about teaching kids to learn to be responsible with money.

One program that has worked for other parents in this area is called Financial Peace Jr. and is based on money principles set out by author Dave Ramsey. Ramsey believes in giving children a “commission” rather than an allowance based on their completion of assigned tasks, which teaches them a sense of worth and responsibility. Each week the parents give out the commission and the child is taught to divide the money into three envelopes. Ramsey recommends putting about 10 percent into the Giving envelope, 10 percent into the Savings envelope, and the rest into Spending.

Judy and Tim Foster have taught Dave Ramsey’s Financial Peace seminars and have used the principles taught in Financial Peace Jr. with their children, now ages 8 and 10. Judy Foster says that even children as young as three can earn money through doing simple tasks and begin to give, save, and spend their own money wisely. She recommends that parents think ahead to where they want their children to be when they are grown as far as using money responsibly, and what steps it will take to get them to that goal. “And the earlier you start, the better,” Foster says. For example, Foster’s 8 year old daughter has taken care of her own chickens, sold their eggs, and saved the money toward items that she decided on herself. “Kids value the things that they have saved for,” says Foster. Parents can encourage their kids by matching their child’s savings if they are going on a trip or working toward a particular savings goal.”

What if your child wants to blow all of their money on something you see as unwise? If it’s their money, Foster said, let them make the mistake. They can learn from their mistakes in the safety of the family and with a parent’s guidance, rather than making costly mistakes when older. Giving kids the opportunity to have their own money prevents the arguments at the store that all parents dread. If they have enough money, they can buy it for themselves. If they don’t, they don’t get to buy it. Foster says that one of the most important lessons kids can learn at an early age is the self-control to wait until they have saved enough to buy the things they want for themselves.

This is especially important through the teen years, Foster says. If an older child has money set aside to buy clothes or for their entertainment, conflicts about teenagers asking for money all the time and wanting expensive things can be avoided. She says to help them set a budget for the things they want and to stay within those limits.

Other parents had some great ideas as well. Andrea Mikeal has already started establishing regular responsibilities for her 4 and 6 year old daughters. To keep it fun, she has listed the chores on a “Wheel of Chores” which reverses to a “Wheel of Rewards” at the end of the week. Although at first they required constant oversight in completing their jobs, she is noticing that they are catching on. Mikeal’s daughters give some, spend some, and save some, and they both have something specific they are working toward.

Mother of two Ede West is teaching her children to save, give, and spend out of their money as well. She says her advice would be to never loan your children money. “Even if we are at the store and one of them asks me ‘Can you buy this for me and I’ll pay you back at home. I have the money at home!’ The answer is always ‘No.’ They must have the experience of standing at the register and buying whatever it is they are dying to have with the money in their little purse and seeing afterwards that now they have less money in their purse.” She says she wants them to learn now to avoid the temptations she gave into as a college student, taking advantage of the easy credit card offers and ending up in serious debt. “I hope they will know well enough by then to just say no and stick with cash,” says West.

Paige Osburn is able to offer advice about teaching children of several different ages, as her seven kids vary in age from 3 to 18. Her younger ones each have a piggy bank made by USAA with four divisions: savings, giving, spending, and investing. “It’s a great way for them to realize that money doesn’t ‘grow on trees.’ It also teaches them the various uses for money. We think it’s especially important that they learn to tithe. They really enjoy giving their money to the church!”

Their oldest child has a debit card that they put money into. Osburn says it’s easier to keep up with than a check book. “She has to keep track of what she spends, how much is there and learn to budget her money.”

Osburn has also taught her kids about interest and investing. “The boys love to watch the financial channel,” she says. Osburn agrees that it is important to start early. “They are learning, through trial and error, about being wasteful or not with their money.”

Other parents recommend setting an allowance based on the age of a child, about $1 for every year. Some feel that an allowance should not be tied to doing chores, since they are expected to do those chores as a family responsibility. They don’t want their children to decide not to work that day because they just don’t feel like getting paid. Foster says that although they do pay for certain chores, others are part of their duties as a family member, but none of their jobs are optional. Foster asks them to think about what would happen if she decided not to feed them or give them clean clothes that day. She also has set up a system to fine her children for things like talking back or complaining about their work.

Other suggestions for learning about money include playing games with your kids that involve money such as Monopoly or Life and talk about happened in the game. Many experts recommend having a special place for kids to keep their money. A clear bank is fun because they can see their savings grow. There are even pretend ATM machines that will count your money and even divide it into saving, spending, and giving categories. Sharing with older children your household income and expenses can help them understand where all the money goes. Kids of any age could help make your grocery list, compare prices at the store, look for sales and coupons, and see how to stay within a budgeted amount.

There are a myriad of books available online and in local bookstores on the subject of teaching kids about money. There are also several web sites that would be helpful in teaching kids the principles of saving, investing, and spending wisely. For references to several other sites and activities as well as chances to answer surveys and ask questions, www.kidsmoney.org is a good one to try. For basic explanations about money, savings accounts, interest, and investing, try www.kidsbank.com. A.G. Edwards’ site, www.agedwards.com, includes a game to help kids decide how long it will take to save for a desired item or amount of money called My Savings Quest, along with games for younger children called My Money Adventure. The web site www.younginvestor.com, sponsored by Columbia Management, guides kids through information about earning, saving, and investing with games and helpful hints. Dave Ramsey’s Financial Peace Jr. program has a fun website with games and stories as well as a store with books and resources at www.kids.daveramsey.com. Judy and Tim Foster give seminars about teaching kids about money and also sell the Financial Peace Jr. kits. If you are interested in learning more, you can contact them at 690-7126.

All of the advice given to children is good advice for parents to remember as well. One of the most important things a parent can do to teach his or her kids how to handle money responsibly is to be a good example to them. If a parent is teaching them to save their money for the things they want, but pulls out a credit card every time the parent wants something, which lesson are the kids going to remember? It’s going to take a big effort, but raising a responsible child who won’t end up as a negative statistic will make it all worthwhile.