Here is my latest article from Midwestern Family Magazine: (I need to take some of this advice with my own kids)
Teaching Kids about Money
The average American has around $8,500 in credit card debt. Many of us are living paycheck to paycheck. According to Federal Reserve statistics, the national debt is now $53 trillion. Parents are the ones who can stop this cycle of increasing debt. There is a good chance you have some bad money habits and you are passing those habits on to your kids. But you don't have to. If you start managing your money better, your kids will learn good money habits. The average American adult gets eight credit card offers in the mail each month!
When to Start Teaching Kids about Money
The state of Illinois recently held "Money Smart Week" to get people to start thinking about how they spend their money. One of the most important parts of the week long seminar was on teaching kids about money. Scott Jackson, the Assistant Vice President at Better Banks, hosted the event for parents and kids. He said we should not wait until kids are old enough to make money to start teaching. "We should begin teaching kids about money when they learn how to count, when they start grasping numbers at the preschool age," he said. Scott suggests introducing three-year-olds to pennies, nickels, dimes and quarters first. Teach them how much each is worth and have them put the coins in a row in order of value.
MoneyInstructor.com suggests explaining to kids as young as five-years-old the value of money. Tell them there is a certain amount of money that we earn each month. That money is used to pay for the house, food and other bills first. Explain that you save a certain amount each month for emergencies. For kids who earn an allowance, financial experts suggest putting 10% of it in a savings account, a certain percentage for charity and the rest is for spending. Then you can show the child the bank statement and how much they are earning in interest.
Using Webkinz to teach good money habits
Scott Jackson suggests getting kids involved in the new Internet craze, Webkinz. Webkinz are tiny stuffed animals (a little bigger than a beanie baby) that each come with a unique secret code. To play the game, you go to Webkinz.com where you can care for your virtual pet, answer trivia and earn KinzCash. Scott said, "Wenkinz are really doing a good job of teaching kids about money. You play games, earn points, and then you buy something from a store. This is a good example of how to manage money. Kids realize how they have to earn money to spend money."
Michelle Aviles has a 9-year-old daughter, Emily, who is really into the Webkinz craze.” You can't just buy things," said Emily. "The game will say sorry, you don't have enough money, you have to go earn some." Emily says she plays games to earn money and she works at the employment office. "Almost all the girls at my school do it and even some of the boys," she said. Emily even has her own virtual house. She bought some rooms for her house for $500-$1000. "When you have enough money you can buy a garden and grow your own food to feed your Webkinz. If you don't feed your Webkinz, they get sick and you have to take them to the vet. That costs money."
Michelle says she has to limit Emily's time on the computer because Webkinz can become addictive, but she is thrilled at how her daughter is learning about money. "I don't have any credit card debt and I think it's because my dad taught me the value of money. It's something I teach my kids. I don't buy something unless I have the money up front," she said. Webkinz reinforces that concept because you cannot buy anything on credit.
When to Get Your Child a Checking AccountThere is no set age on when to get a child a checking account, but financial experts say your child should know how to write a check by 6th grade and have a checking account by the time they reach high school. "Get them into the habit right away of keeping records and setting goals, said Scott." He says the most important thing to teach your teenagers is to save. "The annual savings rate is zero. How can we teach saving to our kids if we are not doing it ourselves? You and your kids have to have a road map to where you want to go. Even if it's just going to the movies once a month or getting some designer jeans, you have to learn to budget." Scott teaches people to save double the amount of the product you want. For example, if your teenager wants a Nintendo Wii system at around $350, he/she has to save $700 before he/she can buy it. According to the Federal Government's debt report, last year's debt per family of four increased by almost $34,000 to around $700,000.
Both of Michelle Aviles' kids have savings account. That is where their money from birthdays and other special events will sit until something "big" comes up. When Emily was asked what her savings account is for, she said, "I save all the money from birthdays for college, a house and a car. Except, I did buy a bracelet for three dollars." Michelle says she's not sure her daughter will ever buy a house with her birthday money, but she's glad Emily understands the concept of saving before buying.
Michelle has worked hard to set a good example. She said the family decided they wanted to take a trip to Disney World. So, she let the kids make decisions for the months prior to the trip that would determine whether they had enough money to go. "I would tell them at the grocery store, you can buy that junk food, but it will take away from the money for Disney. They would immediately say “okay never mind.” The kids knew we had to get the money for the trip by not spending money in other places." she said.
10 Commandment of Personal Finance for Young People
The Institute of Consumer Financial Education made this list for you to cut out and keep close by. It is a reminder of the ten things you should be teaching your kids about money.
1) Manage your expenses so they don't exceed your income.
2) Spend money thinking of your future as well as your present.
3) Begin saving early to take advantage of compound interest.
4) Avoid collecting credit cards and using them for borrowing.
5) Always honor your debts and other financial obligations.
6) Project your income and expenses for the next 12 months and track variances.
7) Focus on the relationship between the risk and projected return of investments.
8) Maintain organized records for tax and general financial planning purposes.
9) Have a plan and a purpose for your investing.
10) Obtain a financial education to be in a position to make intelligent financial decisions.
Kids earning their own money
Preschool age kids are not necessarily too young to start earning their own money. For example, financial experts say you can give your child a quarter ever time he/she makes (or attempts to make) the bed without being asked. But experts say not to push your child to get a job outside the house until he/she really seems ready. Some suggestions include; babysitting, pet sitting or having a lemonade stand. Younger kids can be a parent's helper by cleaning toilets, picking up the house or helping to watch a younger sibling. Kids in middle school may want to mow lawns, rake leaves or remove snow from driveways.
Michelle Aviles says her kids mainly do chores around the house. Emily cleans up dog poop from the yard, watches her niece (with supervision) and cleans the toilets. Her six-year-old son, Jared, does a lot of the same things; except he's too young to babysit and Michelle says sometimes he would rather not get paid if it means cleaning the toilets.
What to avoid
Scott sees a lot of young people in debt. "Alarming numbers of college students are dropping out because of self-inflicting credit issues. Most people are living off of extended credit instead of savings. I have talked to people who come into the bank with $180,000 in credit card debt.” Scott said he has a hard time asking them what they have to show for all that money they spent. “A lot of times the money is spend on vacations and supplementing their income through debt," he said. Scott wants young people and parents to keep in mind that just because a lot of people live off of credit doesn't make it acceptable. He advises people to do everything they can to live within their means. He says once people start living off credit, it's a hard to break the cycle. "We have actually had instances where we help people fix their debt issues and some of them are back a few years later and they have maxed out their home equity, gone bankrupt or lost their homes." Scott says we need to make sure we are setting a good example for our kids and future generations.
How do you teach your kids about money?
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