Teaching Kids Dollars and ‘Sense’
by Susan Bell

    Thumbing through the toy section of the Sears Christmas catalog is a very fond memory of mine. I practically drooled over the swing sets as I contemplated how many of my friends could play on them at one time with their slides, swings and monkey bars. One vivid memory is when I was probably 10 or so, identifying all the toys that I would like for Christmas. My aunt, the financial record keeper of the family farm, informed me that we did have money to buy all my items. I promptly suggested that we just write a check or charge it. I’m not sure what happened after my aunt stopped laughing.
    I actually came from a family that did not believe in using credit of any type. This is quite a rarity in today’s environment where credit cards are used on a regular basis for the wants and needs of the American consumer.  Americans no longer just pull out a credit card for convenience when traveling or dining out, but now charge their everyday living expenses, such as groceries, gas and household expenses. In addition, the appeal of store discounts has propelled consumers to open accounts at every store imaginable. With this type of example, it’s no wonder people grow up having no idea how to stay out of debt. How do we approach the subject of money with our children so that they can grow up with a balanced sense of living within their means?  Here are some basic steps that will at least start your child on the right path.

Start Early
    The key to financial education is to start educating our youth as soon as possible.  It is never too soon to start introducing children to money through the use of piggy banks. 
    Grocery shopping trips can become wonderful math lessons. Eventually, your child can come to understand why it makes more sense to buy a larger size at a reduced cost per serving for certain products. Children also love the thrill of buying items and interacting in a sales transaction, whether it is for a toy or food for the family.
    The Rockwood School District often brings in speakers from financial institutions to talk with children about money. Kim Litzau, supervisor of the Partners in Education program for the school district, states, “We frequently book presenters from banks and credit unions to explain to children the purpose of a bank and how money grows in a savings account.  Rockwood realizes the importance of community experts and the valuable lessons that they bring to the classroom.”
 
Allowances and Spending Money
    Some parents may be concerned about giving a child a set amount of money each week, but an allowance can promote budgeting. The easiest method is to use three piggy banks with equal deposits to each for the purpose of savings, spending and charity.  Some financial educators suggest a fourth bank for investment savings. The key is regular contributions in small bills with ease of allocation.   An allowance also reduces nagging for the latest toy or candy and encourages children to differentiate between what they would like in a fleeting moment versus what they really want when spending their own money. 
    Encouraging your child to get a job is an excellent way to promote hard work and provide extra funds to cover a child’s wish list. You might start out by paying a child to do extra duties around the house, over and above their basic chores. Eventually, your child may begin selling lemonade, watching pets, babysitting or doing yard work in the neighborhood as a young entrepreneur.

Goals and Budgeting
    Providing an allowance opens up an excellent opportunity for a discussion about money goals. Children generally don’t appreciate the idea of delayed gratification, so an allocation to savings for future purchases introduces this concept. The goal may be something that is on the Christmas list that the child didn’t receive. A family goal such as a vacation or amusement park trip may turn the child into a saver of loose change for souvenirs. Whatever the case, a goal will encourage saving for a future purchase.
    As part of this money-management technique, you may also want to tape a piece of paper to the piggy bank so you can write down where the money was spent. A child who still wants instant gratification may be surprised to find out how his or her smaller purchases added up to some significant money. Over time, the child’s values will mature and a better balance will be achieved between what is spent and what is saved. 
    The charity allocation is also a fantastic way to encourage giving. Let your child pick his or her own charity. A trip to donate old blankets to the Humane Society may spur a regular contribution if they see how the donation is used. The lessons of compassion for others will be far-reaching.   

Introduction to Banking
    Another introduction to money management is opening a savings account at a bank or credit union. Many of the financial institutions actually have programs for opening accounts for children. Two institutions that offer programs are First Community Credit Union and Montgomery Bank. The added benefit of statements, showing the effects of building the value with compounded interest, will add a new complexity to savings. Banks will also consider waiving the monthly fee for a minor’s account if tied to a higher balance account such as the parents or grandparents.  
    If you have a fourth piggy bank for investments, you can easily introduce investments as a savings avenue for your child’s education. Two such education options to consider are the 529 plans named after the Internal Revenue Code section that created this type of savings plan, and an Education Savings Account. A 529 Plan is an education savings plan operated by a state or educational institution that is designed to help families set aside funds for future college costs.  An Education Savings Account (ESA) provides relatively low contribution limits, but confirm that the annual maintenance fees do not affect your overall investment return.  To learn more about the basics of education savings vehicles, check out  savingforcollege.com.  Another investment option is mutual funds, but be sure to verify that small additions can be made and maintenance fees are low. 
    Another fun way to encourage saving is for parents or grandparents to match deposits that the child makes to his or her savings account, either dollar for dollar or a portion of the deposit, such as an extra 25 percent for every deposit. The child will delight as the earnings pile up. You may have a savvy saver on your hands after a few encouraging lessons like this.   

Lead by Example
    The most important educational experience for our children is to set good examples.  This includes allowing a child to watch you pay bills and balance the checkbook, calculate and pay income taxes and discuss withholdings from paychecks. It is important for your child to see you review the credit card bill and understand that what may be a convenience will eventually become a bill to be paid. Everyday conversations can turn into learning opportunities as you explain the seduction of credit card companies that encourage you to spend money using credit cards.   
    Your child will also pick up on your values and your differentiation between needs versus wants and wishes. Eventually, your child will begin to evaluate his or her priorities differently. I have a friend who pays his son one dollar for ordering water rather than soda when dining out. This encourages savings and a healthy lifestyle. 
    Money can be the beginning of many problems as kids grow up. It’s a frequent issue in marital problems, plus the interest paid to banks via credit cards is sky high. Poor money choices can wreck credit scores. What better way to help your child grow than to begin with a strong financial education?