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Kids and Money: Allowance and Spending Decisions |
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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 5
tips on using allowance and daily spending to get kids started on the
road to financial responsibility:
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!)
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.
Take children
to a credit union or bank to open their own savings accounts.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.
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.
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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