What if there was mandatory money instruction for every child in America from kindergarten on up and every adult was required to take an annual test confirming those concepts well into their senior years?
It’s a nice fantasy. But in reality, the first money lessons a child gets come from their parents, and experts agree that the way parents teach and reinforce those concepts will have a major impact on their kids avoiding major financial problems later in life.
So, a question for parents: How equipped are you to teach your kids about money?
If you don’t feel confident about creating a money curriculum for your child, don’t worry, there’s help. Start by planning your own financial future with a qualified financial planner. You can take a close look at where you need to be with your finances and gather ideas to teach your kids about money as well.
However you personalize the lesson, every parent needs to involve these five basic concepts in a child’s money education:
1. Work: It’s true. The first great lesson isn’t so much about money as what it takes to earn money. As early as kindergarten or first grade, your kid is going to have to start paying for things. Children need to understand as early as possible that a good day’s work should deliver a good day’s pay, so it’s a good idea to come up with age-appropriate chores in exchange for an allowance. The best place to start is with simple jobs like setting the table and making beds. For older kids, yard work, laundry and housecleaning are good to add to the list.
How big should that allowance be? Try to match the allowance closely to the expenses you want your child to cover and leave a little wiggle room for treats. That way, the child begins to understand choice while learning that spending requires limits. Also offer options that allow children the opportunity to earn additional money for extras – toys or privileges, for instance – then stress why working for treats is important. When kids are younger, you should keep a frequent watch over how they’re handling their cash – checking in every day or so – and then allow them more leverage as they demonstrate wise decisions.
2. Saving: Once you teach your kids about spending, help them identify larger goals they have to save for. Buy a piggy bank – young children relate very well to this tried-and-true symbol of saving. It gives them someplace to put money out of sight so they don’t spend it, and you should impress upon them that they are free to tap into it only to accomplish a goal that the both of you initially discuss. Again, as they make smarter decisions, let them have more responsibility. And this lesson shouldn’t just be about buying stuff – kids need to learn how money can be used for setting and accomplishing goals.
If it makes sense for you, you can also add incentives to save. One idea: Tell your son or daughter that you’ll give them $1 for every $5 or $10 they put in the bank. It will definitely make them think twice about an impulse purchase.
3. Budgeting: Budgeting is one of the most universally misunderstood money concepts for children and adults. That’s why it’s so important to make sure a child understands why it’s so important to write down money priorities and keep track of whether those priorities are being met. When a child gets a little older, it might be a good idea to help them establish a budget for everyday expenses with an important side goal, such as accumulating spending money for a much-anticipated family vacation. Parents might show kids a similar exercise for how they’re setting aside money for the trip. Unsure how to set up a budget? PBS Kids offers an example.
For younger kids, it might make sense to turn the budgeting process into a game. Parents might take a stack of fake money, give it to the child and ask what they would spend it on. The child would write down each purpose – toys, school lunches and special things they need to save for – and get them to write down how they’d allocate the cash. This can turn into a real exercise later.
4. Delayed gratification: If budgeting and savings are going to work, kids need to know they can’t spend their money whenever they feel like it. Parents need to lead by example here. If kids always see you paying with plastic and bringing home carfuls of shopping bags each week from the mall, they might get a sense that money is limitless. On the other hand, if they see you making lists, tearing out coupons and talking about saving for particular goals over the long term – they might start to mimic that behavior.
5. Helping others: It’s important for children to know that there is always someone less fortunate than themselves and it’s important to help, even in a small way. Increasingly, kids are involved in charitable and community activities as part of their educational process – such work even figures into college applications. Teaching your children to set aside a little for those who have less might be a good first lesson in what should be a lifetime of sharing with others. Also, don’t forget that charity isn’t always about money. Kids should also learn the importance of giving their time and labor to important causes and people in need. And if they think of unique and effective ideas to help, by all means, praise and encourage that activity.
September 2010 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Scott M. Spann, CFP(R), EA, a local member of FPA.
Wednesday, September 29, 2010
Tuesday, July 14, 2009
How can I encourage my kids to save?
One incentive to get children to save is to match their savings contributions dollar for dollar. Other options include matching 50 cents for each dollar saved...or even two dollars for every dollar saved. Of course, you get to set the rules and can choose any amount you want.
The important part of matching contributions is that you are creating a built in incentive to encourage saving behaviors. You can also establish guidelines for spending once a matching contribution has been made. While it is important to monitor how the savings match is being spent, it is also a useful way of teaching other important money related lessons such as planned spending, understanding the difference between wants and needs, etc.
As a parent, your ability to match savings depends on your own financial situation. The good news is that no matter how you decide to structure a savings match for your children, the end result is that they will be more money savvy and develop an understanding of just how important savings really is.
The important part of matching contributions is that you are creating a built in incentive to encourage saving behaviors. You can also establish guidelines for spending once a matching contribution has been made. While it is important to monitor how the savings match is being spent, it is also a useful way of teaching other important money related lessons such as planned spending, understanding the difference between wants and needs, etc.
As a parent, your ability to match savings depends on your own financial situation. The good news is that no matter how you decide to structure a savings match for your children, the end result is that they will be more money savvy and develop an understanding of just how important savings really is.
Wednesday, July 8, 2009
Do Parents and Young Adults Ever See Eye to Eye?
Do parents and their young adult children always agree? Obviously not. Where is the fun in venturing out into the world of adulthood without a little disagreement or two regarding important life views? It is not a huge surprise that parents and children have opposing views regarding money matters.
A recent Wells Fargo study indicated some alarming results on how parents and children differ in their views toward personal finances. Apparently the majority of parents (about 95%) are confident their children will attain their financial goals as they enter adulthood. Unfortunately, only 5 percent of the young adults surveyed said they had such confidence about their personal finance goals.
Why such a huge difference in confidence levels? Parents should always want the best for their children. A desire for children to have the best in their lives is a common goal of most parents.
The Wells Fargo survey is one of many recent studies that show the financial knowledge and education regarding financial matters is lacking in our youth. As children graduate high school and enter their college years many lessons have yet to be learned regarding personal finances. For many, the school of hard knocks will be the primary educator. Studies like the Wells Fargo survey indicate a need to start the learning process as early as possible. Parents and educators must work hard to close the generational gap related to money management.
A copy of the Wells Fargo survey report is available at https://www.wellsfargo.com/press/2009/20090616_study.
A recent Wells Fargo study indicated some alarming results on how parents and children differ in their views toward personal finances. Apparently the majority of parents (about 95%) are confident their children will attain their financial goals as they enter adulthood. Unfortunately, only 5 percent of the young adults surveyed said they had such confidence about their personal finance goals.
Why such a huge difference in confidence levels? Parents should always want the best for their children. A desire for children to have the best in their lives is a common goal of most parents.
The Wells Fargo survey is one of many recent studies that show the financial knowledge and education regarding financial matters is lacking in our youth. As children graduate high school and enter their college years many lessons have yet to be learned regarding personal finances. For many, the school of hard knocks will be the primary educator. Studies like the Wells Fargo survey indicate a need to start the learning process as early as possible. Parents and educators must work hard to close the generational gap related to money management.
A copy of the Wells Fargo survey report is available at https://www.wellsfargo.com/press/2009/20090616_study.
Thursday, July 2, 2009
Financial Literacy: Making the Case for Home-Based Instruction
Parents have enough to worry about these days. Finding balance between work and family life obligations is a major challenge. Managing personal finances with a growing family also presents additional obstacles during the financial life planning process. Sometimes it is hard to fit basic financial education into the family agenda.
One thing is becoming more and more clear regarding the topic of financial literacy. If you want your children to learn about managing money you cannot rely on the public school system in America to get the job done. Home schooling your kids on money matters is the best way to make sure they learn important life lessons about money. This does not mean that you keep them out of the school system. Just do not rely on the public school system and increasing financial literacy awareness to get the job done.
A recent back-to-school cardholder survey from Visa revealed that:
• Only 5% of adults learned about the vital life skill of money management in elementary or high school.
• Less than half of people (48%) learned about money management from their parents, while 41% were self-taught or learned the hard way.
• 91% of respondents said they supported requiring financial education be taught in every high school in the country. Currently just fifteen states have some sort of financial education requirement for high school students.
While it is important for more schools to embrace financial literacy programs, the best source of education is in the home. It is a telling sign that only 5% of adults surveyed learned basic money management in school. Do you think that has any relationship to our country's existing love affair with debt?
All parents and adults need to take the time to educate future generations about how to manage their money. For many already experiencing financial struggles, now may be the time to take control of their own financial future. During good and bad financial times children are watching and observing how parents and adults behave when it comes to money related matters.
Scott M. Spann, CFP(R), EA
scott@lifespanplanning.com
Source: Visa, Visa Back-To-School Survey Finds That Only 5% of Kids Learn Vital Life Skill of Money Management in Class, August 2007, http://www.practicalmoneyskills.com/english/presscenter/releases/081307.php
One thing is becoming more and more clear regarding the topic of financial literacy. If you want your children to learn about managing money you cannot rely on the public school system in America to get the job done. Home schooling your kids on money matters is the best way to make sure they learn important life lessons about money. This does not mean that you keep them out of the school system. Just do not rely on the public school system and increasing financial literacy awareness to get the job done.
A recent back-to-school cardholder survey from Visa revealed that:
• Only 5% of adults learned about the vital life skill of money management in elementary or high school.
• Less than half of people (48%) learned about money management from their parents, while 41% were self-taught or learned the hard way.
• 91% of respondents said they supported requiring financial education be taught in every high school in the country. Currently just fifteen states have some sort of financial education requirement for high school students.
While it is important for more schools to embrace financial literacy programs, the best source of education is in the home. It is a telling sign that only 5% of adults surveyed learned basic money management in school. Do you think that has any relationship to our country's existing love affair with debt?
All parents and adults need to take the time to educate future generations about how to manage their money. For many already experiencing financial struggles, now may be the time to take control of their own financial future. During good and bad financial times children are watching and observing how parents and adults behave when it comes to money related matters.
Scott M. Spann, CFP(R), EA
scott@lifespanplanning.com
Source: Visa, Visa Back-To-School Survey Finds That Only 5% of Kids Learn Vital Life Skill of Money Management in Class, August 2007, http://www.practicalmoneyskills.com/english/presscenter/releases/081307.php
Sunday, June 28, 2009
Early Money Lessons
I cannot recall the exact moment that my daughter and I had our first talk about money. My guess is that it probably occurred about the same time that she realized that she wanted something. Once kids start asking for things it is impossible to avoid discussions about money.
My wife and I try to keep things as simple as possible for a 3 year old (“3 and a HALF” as she constantly reminds us these days). For young children the values of earning, saving, planning, and working hard are the most important things to focus on. Here are some basic guidelines that are generally helpful for young children:
Take the time to talk about money. Explain to them how you pay for things at the grocery store. In very basic terms you can walk them through the buying process. Let them pay on occasion. This is also a good social skills activity.
Start an allowance once they reach grade school. Choose a set allowance and set basic guidelines for their expectations to receive an allowance. This is a great opportunity to help them start managing money.
Reward saving. If your child wants something it is important to give them a chance to save for it. Even if you have not started an allowance, younger children can use their piggy banks as a personal saving account. Take them to the bank and let them count their money. Then use the reward process to let them purchase something they have wanted. Delayed gratification has its benefits.
Be a good role model. You do not have to feel like a financial genius to model positive financial behaviors for your children. However, you do need to feel comfortable with money and be prepared to practice what you preach when it comes to money matters. If you are not completely comfortable with managing your money, take the time to learn. Your personal financial situation will benefit and your children will be observing smart money related behaviors such as budgeting, saving, planning, and avoiding debt.
My wife and I try to keep things as simple as possible for a 3 year old (“3 and a HALF” as she constantly reminds us these days). For young children the values of earning, saving, planning, and working hard are the most important things to focus on. Here are some basic guidelines that are generally helpful for young children:
Take the time to talk about money. Explain to them how you pay for things at the grocery store. In very basic terms you can walk them through the buying process. Let them pay on occasion. This is also a good social skills activity.
Start an allowance once they reach grade school. Choose a set allowance and set basic guidelines for their expectations to receive an allowance. This is a great opportunity to help them start managing money.
Reward saving. If your child wants something it is important to give them a chance to save for it. Even if you have not started an allowance, younger children can use their piggy banks as a personal saving account. Take them to the bank and let them count their money. Then use the reward process to let them purchase something they have wanted. Delayed gratification has its benefits.
Be a good role model. You do not have to feel like a financial genius to model positive financial behaviors for your children. However, you do need to feel comfortable with money and be prepared to practice what you preach when it comes to money matters. If you are not completely comfortable with managing your money, take the time to learn. Your personal financial situation will benefit and your children will be observing smart money related behaviors such as budgeting, saving, planning, and avoiding debt.
Thursday, June 25, 2009
Understanding the Family Economy
As a parent of a preschooler I realize as my daughter grows older it is essential that she learns about the economy at an early age. No, I don't mean the U.S. economy. That is hard enough for most adults to understand. Even more difficult for some politicians to grasp. The most important economy for young children to begin learning about is the family economy.
Toddlers can begin getting exposed to money through piggy banks and playing with coins.
Cautionary note: Just do not turn your back on them or you may suddenly find coins disappearing into mouths. Luckily we narrowly avoided a trip to the emergency room with our daughter!
As kids enter the preschool years you can help them continue to identify different types of money. Parents can also help them begin to understand the difference between basic needs and wants. Sometimes I find myself needing a refresher course in that area as well. The concept of earning money is also an important lesson to be learned during the preschool years. Kids can be taught about the reasons that mommy and daddy go to work. They also need to know that everyone in the family has a job. Their job is to simply be a kid. The primary occupation of children is to learn, to play, to honor their parents, and to go to timeout when they don't.
Young children do not need to know everything about recessions, stock market trends, interest rates or federal bailouts. However, they do need to understand their role in the family economy.
Toddlers can begin getting exposed to money through piggy banks and playing with coins.
Cautionary note: Just do not turn your back on them or you may suddenly find coins disappearing into mouths. Luckily we narrowly avoided a trip to the emergency room with our daughter!
As kids enter the preschool years you can help them continue to identify different types of money. Parents can also help them begin to understand the difference between basic needs and wants. Sometimes I find myself needing a refresher course in that area as well. The concept of earning money is also an important lesson to be learned during the preschool years. Kids can be taught about the reasons that mommy and daddy go to work. They also need to know that everyone in the family has a job. Their job is to simply be a kid. The primary occupation of children is to learn, to play, to honor their parents, and to go to timeout when they don't.
Young children do not need to know everything about recessions, stock market trends, interest rates or federal bailouts. However, they do need to understand their role in the family economy.
Wednesday, June 24, 2009
The A-B-C's of Behavior Change
In order to teach others valuable money management lessons it is essential that you model positive financial behaviors at home with your kids. Children learn through observation. The day to day management of personal finances and routine conversations (or arguments) about money are constantly being witnessed and reviewed by inquiring minds. Think about the important lessons that you learned about money as a child. What events or money lessons helped shape your views about money and wealth?
Next, take a moment to review where you currently stand as far as your financial life plan is concerned. Are there any financial behaviors that you would like to change? For the majority of people the answer is a resounding YES! That is why, prior to jumping into learning activities for kids, it is important that us grownups take a moment to review the "ABC’s of Financial Behavior Change".
Most people find it difficult to give up or change things that are familiar. For many people seeking financial change, negative financial behaviors occur on a regular basis. Since negative financial behaviors are usually present for long periods of time it often helps to understand the characteristics of the behavior itself.
A very simple yet effective method of assessing financial behaviors is called the "ABC" approach. Behavioral psychologists typically use this method to make observations on the Antecedents, Behaviors, and Consequences of the behavior that needs to be changed. In other words, "What comes directly before the behavior?", "What does the behavior look like?", and "What comes directly after the behavior?"
This approach is relevant to the financial literacy discussion because poor financial behaviors need to be replaced by positive alternatives. For example, lack of organizational skills and budgeting (antecedent) could lead to the behavior of overspending. The resulting consequence is often credit card debt as a result of living beyond one's means. To change this cycle you need to alter the behavior. Once you recognize fear or avoidance related to establishing a spending plan (a.k.a. "budget") you need to stay focused on the short and long term benefits of financial freedom. The resulting consequence could be a small reward such as dining out or a trip to the movies. Of course, the ultimate consequence is financial freedom which allows people to use money to help accomplish life planning goals.
The ABC process is very basic, but with financial planning you sometimes need to take the baby steps before you run the race to financial freedom. Take a few moments to analyze your problem financial behaviors. Try to identify any patterns. If there are consistent antecedents and/or consequences, then you should have a plan in place that will target them in order to increase or decrease the target behavior. The ultimate result will be financial freedom. Most importantly, you will also be modeling positive financial behaviors for your children.
Next, take a moment to review where you currently stand as far as your financial life plan is concerned. Are there any financial behaviors that you would like to change? For the majority of people the answer is a resounding YES! That is why, prior to jumping into learning activities for kids, it is important that us grownups take a moment to review the "ABC’s of Financial Behavior Change".
Most people find it difficult to give up or change things that are familiar. For many people seeking financial change, negative financial behaviors occur on a regular basis. Since negative financial behaviors are usually present for long periods of time it often helps to understand the characteristics of the behavior itself.
A very simple yet effective method of assessing financial behaviors is called the "ABC" approach. Behavioral psychologists typically use this method to make observations on the Antecedents, Behaviors, and Consequences of the behavior that needs to be changed. In other words, "What comes directly before the behavior?", "What does the behavior look like?", and "What comes directly after the behavior?"
This approach is relevant to the financial literacy discussion because poor financial behaviors need to be replaced by positive alternatives. For example, lack of organizational skills and budgeting (antecedent) could lead to the behavior of overspending. The resulting consequence is often credit card debt as a result of living beyond one's means. To change this cycle you need to alter the behavior. Once you recognize fear or avoidance related to establishing a spending plan (a.k.a. "budget") you need to stay focused on the short and long term benefits of financial freedom. The resulting consequence could be a small reward such as dining out or a trip to the movies. Of course, the ultimate consequence is financial freedom which allows people to use money to help accomplish life planning goals.
The ABC process is very basic, but with financial planning you sometimes need to take the baby steps before you run the race to financial freedom. Take a few moments to analyze your problem financial behaviors. Try to identify any patterns. If there are consistent antecedents and/or consequences, then you should have a plan in place that will target them in order to increase or decrease the target behavior. The ultimate result will be financial freedom. Most importantly, you will also be modeling positive financial behaviors for your children.
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