Student Support Link
by Laury Rowles
Last month, I took the train into New York City with my three kids to catch a new exhibit at the American Museum of Natural History.
Charlotte, my third-grader, has been obsessed with buying a watch, so she begged me to include shopping in our trip. I suggested she bring $20 from her piggybank, expecting to find a bargain from the ubiquitous watch vendors on the street.
One Unique Kid
No dice. After a stroll through Central Park and down the West Side, we still hadn't come across anyone selling watches. So we went into a Swatch store, where she fell for a kids' model decorated with dolphins. Price: $35. I took her $20 and paid the balance. When we got home, with no prompting, Charlotte handed me $15.
Nothing warms a personal finance columnist's heart like a child who's starting to get the money thing.
We've been talking about financial basics since my girls could add. But such discussions are the exception, according to a recent survey by Charles Schwab. Only a third of teenagers said they understand why their parents make the financial decisions they do, and just 14 percent are involved in the process of paying bills or helping manage household finances.
The ABCs of Money Management
Solid money management can be boiled down to three issues: differentiating between needs and wants; planning ahead; and making choices about what we really value.
Since it's the back-to-school season, here are a few ways to involve your kids in routine money decisions that demonstrate those three essential principles:
1. Establish early on that you're not an ATM.
Whenever your child asks to buy something, take the opportunity to talk about the distinction between needs and wants. Also discuss the media they encounter -- the claims made in commercials and the art of persuasion in advertising.
My two older children (ages 10 and 8) receive an allowance of $10 a week, which is plenty for little luxuries. In the past, when they demanded an impulse item in a store, I would respond by asking, "Did you bring any money?" Now they bring money.
2. Let them make their own financial mistakes.
My daughter Charlotte (the future financial whiz) loves Webkinz -- stuffed animals that come with a computer code. Kids can take the code to the Webkinz World web site and play virtual games with their animal.
Charlotte already had three or four Webkinz, and asked me to take her to the toy store for more. I initially refused, saying she shouldn't waste her hard-earned cash on yet another stuffed animal. She cried, "Then I don't want an allowance!"
I realized by trying to control her spending I was disempowering her, and preventing her from learning by trial and error. I can make suggestions, but unless she's headed for a tattoo parlor, she should make the ultimate spending decision herself.
3. Get kids excited about vacation planning.
A few years ago, we arranged a trip to Disney World. Ten months before the date, the girls and I discussed the fun stuff we could do, as well as the cost of the airfare, hotel, and park tickets. (I pointed out that we saved on airfare by purchasing early, giving us more money for activities.)
We took a coffee can and labeled it the "Disney Dream Jar," into which my husband and I tossed our loose change every day. The kids got into the spirit, adding the proceeds from a lemonade stand.
At the end of the month we'd take the coins to the kid-oriented "coinworks" machine at the bank, where they could see change transformed into dollars. I showed them how I deposited the money into my checking account, and transferred it to an Internet bank account that would pay interest on our savings -- so we would have even more for the trip.
4. Make your kid do the legwork.
If you decide your child is old enough for a cell phone, tell them to research three plans and present you with the results, explaining which one they think is best and why.
Agree in advance on which costs you'll cover -- the basic plan -- and what they'll pay for, such as ringtones. (For a cell phone that teaches budgeting lessons, consider kajeet, recommended by Yahoo! Tech columnist Dory Devlin.)
5. Take your kids to the bank and open a savings account for them by age seven.
We opened accounts for all three girls last year at Valley National Bank, which was offering a Kids First Savings Account with more than 4 percent interest, as well as a $10 initial match. This was a terrific opportunity to explain compounding, and introduce the idea of matching funds (and 401(k) plans). Now, whenever they make a savings deposit, I provide the match.
I doubt that my youngest -- age three at the time -- got much out of this exercise, but she did enjoy the crayons and coloring books on the plastic picnic table in the bank lobby. (A bit of a bank snob, she prefers New Jersey's Commerce Bank for its cherry lollipops.)
6. Highlight money lessons in the grocery store.
I play math games with my kids when we're food shopping. Last week it was a quiz: "Why does this $4 package of chicken actually cost more than that $5 package of pork chops?" We've discussed price-per-pound comparisons, the laws of supply and demand, and why it's smart to stock up when a favorite item is on sale.
If your teen is old enough to drive, ask them to do the grocery shopping for you. Give them an incentive to bargain-hunt. If they can prove they saved money on the bill -- by buying the store brand instead of a name brand, or using a coupon -- let them keep the savings.
7. Help your kid to understand depreciation.
To show them how quickly that thing they absolutely had to have loses value, set up an account on eBay and sell something your kid no longer wants or needs -- books, CDs, sporting equipment, or a handbag. Compare the proceeds to what they paid.
Or check out the Freecycle Network online, where they can witness how one person's junk become another's treasure.
8. Teach teens to negotiate the price of their services.
Ask your kid to perform a specific task such as cleaning out the garage, and suggest that they offer an opening bid to do the work. If it's higher than you expect, haggle to lower the price (and show them how to stand their ground). If it's lower than you expected, accept on the spot, and suggest they aim higher next time. They'll quickly learn to ask for more -- and pick up an invaluable skill for their financial future.
I occasionally hire teens to baby-sit, and when I inquire about their hourly rate, 8 out of 10 will say "whatever." Have your kids research what their peers are offering for similar services. Discuss why they should charge more for watching three children versus one, or mowing a half-acre lawn versus a quarter-acre.
9. Make savings and charity a part of life.
We want our kids to be hard-working and responsible, but also grateful and giving. So we've introduced the habit of putting their money where their values are. Of the $10 in weekly allowance, 10 percent is set aside for a charity of their choice, and 20 percent for savings.
Several companies, including Moonjar and Prosperity4Kids, offer piggybanks that teach similar lessons. (We just separate the money into three envelopes.) So far, the kids have no complaints -- and with luck, this virtuous practice will follow them into adulthood.