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15 Ways to Teach Kids About Money |
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Introducing Kids to Money
Money gives people -- both young and old -- decision-making
opportunities. Educating, motivating, and empowering 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 spend. Everyday spending
decisions can have a far more negative impact on children's financial
futures than any investment decisions they may ever make. Here are 15
simple ways to help educate children about personal finance and
managing money:
1. As soon as children can count, introduce them to money. Take an active role in providing them with information. Observation and repetition are two important ways children learn.
2. Communicate with children as they grow about your values concerning money --- how to save it, how to make it grow, and most importantly, how to spend it wisely.
3. Help children learn the differences between needs, wants, and wishes. This will prepare them for making good spending decisions in the future.
4. Setting goals is fundamental to learning the value of money and saving.
Young or old, people rarely reach goals they haven't set. Nearly every
toy or other item children ask their parents to buy them can become the
object of a goal-setting session. Such goal-setting helps children
learn to become responsible for themselves.
5. Introduce children to the value of saving versus spending.
Explain and demonstrate the concept of earning interest income on
savings. Consider paying interest on money children save at home;
children can help calculate the interest and see how fast money
accumulates through the power of compound interest. Later on, they also
will realize that the quickest way to a good credit rating is a history
of regular, successful savings. Some parents even offer to match what
children save on their own.
Allowance and Spending Decisions
6. When giving children an allowance, give them the money in denominations that encourage saving.
If the amount is $5, give them 5-1-dollar bills and encourage that at
least one dollar be set aside in savings. (Saving $5 a week at 6
percent interest compounded quarterly will total about $266 after a
year, $1,503 after 5 years, and $3,527 after 10 years!)
7. Take children to a credit union or bank to open their own savings accounts.
Beginning the regular savings habit early is one of the keys to savings
success. Remember, don't refuse them when they want to withdraw a
portion of their savings for a purchase--This may discourage them from
saving at all. You can also introduce children to U.S. savings bonds.
Bonds are still a good value, costing one-half their face value and
earning interest that in some instances will be tax-free if used for a
college education. Perhaps more importantly, when given as a gift,
bonds will not be spent immediately, reinforcing saving and
goal-setting lessons.
8. Keeping good records of money saved, invested, or spent is another important skill young people must learn.
To make it easy, use 12 envelopes, 1 for each month, with a larger
envelope to hold all the envelopes for the year. Establish this system
for each child. Encourage children to place receipts from all purchases
in the envelopes and keep notes on what they do with their money.
9. Use regular shopping trips as opportunities to teach children the value of money.
Going to the grocery store is often a child's first spending
experience. About a third of our take-home pay is spent on grocery and
household items. Spending smarter at the grocery store (using coupons,
shopping sales, comparing unit prices) can save more than $1,800 a year
for a family of four. To help young people understand this lesson,
demonstrate how to plan economical meals, avoid waste, and use
leftovers efficiently. When you take children to other kinds of stores,
explain how to plan purchases in advance and make unit-price
comparisons. Show them how to check for value, quality, repairability,
warranty, and other consumer concerns. Spending money can be fun and
very productive when spending is well-planned. Unplanned spending, as a
rule, usually results in 20-30 percent of our money being wasted
because we obtain poor value with our purchases.
10. Allow young people to make spending decisions. Whether good
or poor, they will learn from their spending choices. You can then
initiate an open discussion of spending pros and cons before more
spending takes place. Encourage them to use common sense when buying.
This means doing research before making major purchases, waiting for
the right time to buy, and using the "spending-by-choice" technique.
This technique involves selecting at least three other things the money
could be spent on setting aside money for one of the items, and then
making a choice of which item to purchase.
Buying Smart
11. Show children how to evaluate TV, radio, and print ads for products.
Will a product really perform and do what the commercials say? Is a
price offered truly a sale price? Are alternative products available
that will do a better job, perhaps for less cost, or offer better
value? Remind them that if something sounds too good to be true, it
usually is.
12. Alert children to the dangers of borrowing and paying interest.
If you charge interest on small loans you make to them, they will learn
quickly how expensive it is to rent someone else's money for a
specified period of time. For instance, paying for a $499 TV over 18
months at $31.85 a month at 18.8 percent interest means the buyer
really pays about $575.
13. When using a credit card at a restaurant, take the opportunity to teach children about how credit cards work. Explain to children how to verify the charges, how to calculate the tip, and how to guard against credit card fraud.
14. 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 for
emergencies (as originally planned). Many of those same students find
themselves having to cut back on classes to fit in part-time jobs just
to pay for their credit card purchases.
15. Establish a regular schedule for family discussions about finances.
This is especially helpful to younger children--it can be the time when
they tote up their savings and receive interest. Other discussion
topics should include the difference between cash, checks, and credit
cards; wise spending habits; how to avoid the use of credit; and the
advantages of saving and investment growth. With teenagers, it's also
useful to discuss what's happening with the national and local
economies, how to economize at home, and alternatives to spending
money. All of this information will be important as they take on more
responsibility for their own financial well-being.
Adapted from "Dollars and Sense," in the April 1999 issue of Our Children, the official magazine of the National PTA�.
Paul Richard is executive vice president of the National Center for
Finance Education (NCFE), a nonprofit organization dedicated to helping
people learn to manage money.
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