From Piggy Banks To High Finance

Teach your kids to handle cash by setting a good example and providing hands-on experience.

Not too long ago, a Jacksonville postal worker was lamenting the fact that he had just been laid off from work. Although he was concerned about the lack of income, he saw some advantages to his situation. “Perhaps it will be good for the children,” he told a friend. “Do you want to see where my money goes?” He took his friend into his daughter’s room and opened the closet door. Inside, shoeboxes were stacked from floor to ceiling. “Every one of those boxes is filled with shoes,” he said. “My daughter has no idea that the rest of the world does no live like this.”

Teaching children the value of money – as well as the best ways to manage it – is like teaching them about love. It’s hard to understand unless you’ve experienced it. Although children can learn the mechanics of money in math, social studies, history and economics class, their ability to apply the mechanics successfully will depend on two factors: the example their parents set and their own hands-on experience.

Teaching Thrift

“I learned a great deal about money in school,” says Lynne Grant, a home economist from the University of Connecticut Cooperative Extension Service. “But I learned more at my mother’s knee.”

Your own money habits have the largest influence on your children’s attitudes toward the dollar. “Children take on parents’ attitudes before the age of 6,” says Randy Russac, a specialist in child psychology at the University of North Florida. “We’re swimming upstream if we try to change attitudes after that.”

Parents who practice thrift at the marketplace will make a good impression on their children. Surveys show that most of us don’t even compare prices when we shop. To teach wise money management, comparison-shop and allow your children to shop with you. Tell them, “We’re going to another store; this store is too expensive,” or “We’ll wait to get this when it is on sale.”

This way, your good habits can become your children’s good habits. For example, a little boy in the grocery store asked his mother, “Do we have a coupon for Captain Crunch?” When the mother said “no,” that was the end of the discussion. Apparently the child knew his mom never bought Captain Crunch without a coupon.

Teach thrift by reminding children to turn off lights, close exterior doors and keep their bikes out of the street. Encourage them to put only as much food on their plates as they will eat and to bring coats home from school so they are not lost.

Separating Needs From Wants

J. Willard Marriott, the chief executive officer of Marriott hotels and restaurants, believes the very first thing children need to learn about money management is “to distinguish between their needs and their wants.”

Children learn to say “no” to their own wants when they see that Mom and Dad have the self-discipline to say “no” to themselves. Let your children know that although you could indulge in wants if you wished, you have decided to be wise and save your money for something you really need.

Telling children “We don’t have enough money,” is one of the most negative lessons a parent can teach about money management. It teaches children their parents have not managed their money well enough to make ends meet. “We don’t have enough money” creates anxiety about being poor. The Yankelovich Clancy Shulman Youth Monitor, an ongoing survey of children’s attitudes, found in 1987 that 32 percent of children in grades one through ten worried about being poor.

The better lesson on money management is to teach children, “I have decided not to spend my money on that item.” Children must learn that even when you have plenty of money, you can make responsible choices about how to spend it. When you make responsible choices, you control your money rather than allowing your money to control you.

Children who are taught to spend until the money runs out will always be a slave to their paychecks. Children who learn to separate their needs from their wants will always have the freedom that comes with being in control of their money.

When To Indulge

Entirely depriving children of wants can destroy their sense of worth. Therefore, it’s wise to devise a system for allowing them to receive wants. Perhaps you’ll want to let them select a candy bar at the check-out line every other week, and other treats can be saved for weekends or when guests come. Toys they want can be purchased on holidays or birthday, a family vacation or other special occasion.

Small children appreciate a luxury more when given an opportunity to earn their toys and treats. One young boy has a point chart attached to the refrigerator. Every time he does something helpful, he receives a star in the box. When the chart is filled, his mother buys him a treat or toy. Treating your children to a luxury after a period of denying their wants not only teaches them to say no to themselves, but also teaches them to appreciate luxuries.

Teaching a child to say no to his wants may bring on a temper tantrum or two at first. “Many is the time I’ve dragged a child kicking and screaming through the checkout line because he couldn’t have every candy bar in sight,” says a mother of eight. “However, I believe the displays are worth it because my three grown children now manage their money better than I do.”

The Allowance Controversy

You’ll discover how well your children have learned thrift and how well they distinguish their wants from their needs when they start to manage their own money. Flora L. Williams, a professor at Purdue University, believes children can start to practice managing their own money “as soon as they have the maturity to keep from losing it.”

“Children need to see where money goes, know ho having money feels and how not having money feels,” says Rick Walker, a vice president at Florida National Bank and the father of four young children. “They need to know what it feels like to run out of money, how it feels not to be able to buy anything.”

Since children can’t work outside the home, they must depend on Mom and Dad for money to practice with. Parents can consider allowance an investment in their children’s financial education.

After all your lessons on wise money management, children may still spend their own money in frivolous ways. That’s OK. “Only children who learn with a little money will know how to handle a lot of money,” says Lynne Grant. An allowance is “learning money” to help teach children the consequences of the decisions they make with their money. It is natural for them to make a few mistakes before they become financial geniuses.

Because an allowance is considered learning money, experts feel it should be given with no strings attached. However, 80 percent of the parents in Penny Power, a Consumer Reports children’s magazine, gave allowance as a form of wages in exchange for household chores.

The question this sparks is: Do you dole out an allowance like a social program, or do you require the children to work for their pay?

“We all work for an allowance in a sense when we work for our paycheck,” says Dr. Russac. “If you don’t make the child earn the allowance, you’re not reinforcing anything with it.”

Parents who make their kids work for their wages know that money isn’t free and they don’t want their children to think that they can get money without doing anything for it. In the age of credit card addicts, such fears are well-founded.

On the other hand, Rick Walker says, “Children are too young to be corrupted into thinking money grows on trees.”

r. Lee Salk, a child care expert, agrees: “You don’t teach kids anything by giving them a quarter every time they go to the store for you – anymore than you would by handing them a bill for meal and service charges after dinner.”

Parents who do not connect allowance to household chores believe chores are a child’s responsibility to the family. Chores should be done simply as a part of living at home.

A compromise may work in your family. Give your children a specified amount money every week as “learning money” that is not contingent on chores. Expect certain duties from them as a courteous household member. Then give children opportunities to earn more money by helping with household chores. This teaches a child two lessons: 1) I’m totally in charge of my own money and my parents’ whims won’t deprive me of my reward for handling my money well, and 2) working hard enables me to increase the amount of money I control.

The Junior Financial Plan

When you begin giving a child an allowance, help him or her set goals for the money. Without a plan, the money will more easily slip through the child’s fingers.

Professor Williams suggests dividing the child’s allowance in three parts: money to share, money to spend and money to save.

Ten percent of the total income can be allocated to the “money to share” category. This is for birthday presents or Sunday school collections or contributions to charitable causes.

“Help your children understand that you share the family resources with them when you give them an allowance,” Williams says.

Half of the child’s income is the amount recommended for spending money. The things a child buys with his spending money will depend on the amount of allowance he receives. Parents can work with their children to set goals for the spending money. Decide what the parents will buy and what the kids will buy.

Parents of preteens usually buy their children the things they need. This leaves the spending portion of their allowance for wants. Once children reach adolescence, they may disagree sharply with their parents on what is a need and what is a want. Last year’s Nikes may be in perfect shape, but because Reeboks are the hot brand this year, some teens insists they need new Reeboks.

It will save many a quarrel if teens are given enough allowance to cover the majority of their needs. The real lessons in money management come when the same money must be allocated for needs as well as wants. Expensive clothes, albums, gasoline and dates that were once needs quickly become wants.

Along with the privilege of deciding where to spend money comes the responsibility for the way it’s spent. Teenagers learning to manage money may spend all their allowance and then ask their parents to pay for the band’s ski trip. If parents bail them out, that negates every lesson they have tried to teach about wise money management.

Who Foots The Bill?

Whether the parent or the child foots the bill for certain items will vary from family to family. Generally, the more allowance children receive, the more they should be required to buy with that allowance.

Parents who are trying to teach their children responsible spending habits can still use birthdays and holidays as an excise to buy their children something they would normally be responsible for purchasing themselves.

Once parents and children establish their guidelines, they must be careful to adhere to the guidelines. Sometimes parents alter the list according to the child’s good or bad behavior. For instance, one mother made her children pay for having their cavities filled hoping the disincentive would cut down on their cavities. Experts frown on mixing allowance with discipline. The purpose of an allowance is strictly to teach money management. Confusing the issues does not teach children to be adept money managers.

Incentives To Save

The remaining 40 percent of the child’s income after sharing and spending should be allocated to savings. Being a disciplined saver goes right along with being a disciplined spender. Children who can say no to their wants will have money to save.

“The ability to save is proof that an individual has discipline,” Walker says. “Whenever we consider a loan, we look at an individual’s savings to see how they manage money.”

When children learn that “money makes money,” it gives them more enthusiasm for saving. Banks or savings and loan institutions that pay interest on savings accounts can help children discover that money is compounded when they save. Parents may choose to emphasize the power of their children’s money. Some parents match the interest the bank pays on the child’s money. One couple has created a family bank. The parents are the bankers and they pay 40 percent interest on all the money the child decided to save. A family bank is also a good idea when a child’s savings is not large enough to put in a financial institution.

It is important that children set goals for their savings, just as they do for their sharing money and their spending money. However, they must decide for themselves how they want to spend the money they have saved. If Mom and Dad decide the child should save for college and the child doesn’t want to attend college, he or she will not be motivated to save a dime.

Children who set their own goals still learn the value of saving. They learn it was worth it to say no to all those video games and ice cream cones when they have a new stereo in their bedroom or a new bicycle to ride around the neighborhood.

Welcome To Reality

When you let your children control their own money, you are taking a big step. They are entering the world of adulthood. In the world of adults, they will learn independence and must be treated accordingly.

Your children’s money is the same as the money of any neighbor or friend. Respect the fact that your child’s money is his money even if you’ve given it to him. Lend only with the intention of being paid back. Borrow only with the intention of paying back. Don’t take without asking. Isn’t that what you’ve taught all along?

Freelance writer JeaNette Goates Smith is a frequent contributor to Jacksonville Today.