Sense and Dollars Parents' Guide Money Smarts: Things to Teach Your Kids About Money

Most (72%) of America's teens learned about money from their parents. 83% of this number were satisfied with their parent's advice, and 79% said they plan to handle money the way their parents do, according to a recent Student Fiscal Fitness Survey, conducted by Yankelovich Partners for Phoenix Home Life Mutual Insurance Company. Here are some things you can do to raise money-smart kids:

1. Value is as important as cost.
Take every opportunity you can to help your children see that money, goods, and services do not just land in their laps. If children are just given everything they ask for, they will never know its value—what it took to be able to afford to buy a certain item, take lessons, go on a trip, or whatever.

Value also relates to utility. Shoes that cost $125 are probably not a good value if you'll outgrow them in six months. Shoes that cost $125 and will last ten years are likely to be a good value.

2. Do as I do.
Show good money management techniques by example. Take the kids to the bank, or the credit union, or the loan payment office. Let them see how you save, how you plan for spending, how you pay the bills, how you balance a checkbook, and all other money management activities around the house. At the supermarket, ask them to find the cheapest type of cereal or juice, and the one that is the best value for your family. (Even if it's cheap, if your kids won't eat the cereal or drink the juice, it's a waste of money.)

3. Let them make mistakes . . . with their own money.
You should stand by and be ready to advise them, but the final choice to spend money is actually your child's responsibility. Let them plan a budget, earn the money, and spend it. If they make mistakes, offer to help them think through it, but, at all costs, avoid saying "I told you so."

4. Don't talk budget . . . talk spending plan.
Talk about what they want and what they need, and the acute difference between the two. Concentrate on planning how they can afford these purchases and still put aside money for savings, tax liabilities, and charity.

5. Save, save, save!
Suggest a rule of thumb such as: 60 percent for spending, 30 percent for short-term savings, 10 percent for a long-term goal. Teach kids about the magic of compound interest. While they're learning about money earning money, they'll also get a chance to practice math skills. Perhaps they would like to think of savings as a plan to pay themselves first.

6. Money isn't a punishment . . . Or a reward . . . Or a substitute for companionship.
If you give a child an allowance, do not threaten to take it away if they act up. In a kid's mind, this yields some pretty threatening equations: "I am bad. Therefore, I have no money." -or- "Good people always have money." Don't try to buy your way out of spending time with your kids. Expensive gifts are really no substitute for companionship.

7. Talk to them where they live.
As soon as kids learn they shouldn't eat coins, start talking about money with them. And keep it up. It's never too early . . . or too late. 8. Credit cards come with many hidden costs.
Credit cards are not bottomless pits of money. Sooner or later, you have to pay them off. The awful truth is that, if you only pay the minimum balance on your debt, you could end up paying double, triple, and even quadruple the amount of money you would have paid if you bought an item with cash.

9. Think about others.
Encourage your kids not to brag about the things they own in front of kids that don't have as much as they do. Encourage them to share their largesse with others as well, either through volunteer efforts or direct contributions to charity.

Other places on the web that you can look for suggestions about talking to your kids about money:

Jump$tart Coalition's Education Data Base, a searchable collection of online, print, and video materials for helping your kids learn about personal finance.

Federal Trade Commission's Consumer Protection Children's Issues, a link to online brochures about many personal finance issues, such as credit cards, 900 telephone numbers, and online buying.

The Young Investor, a look at investments for young and old, sponsored by Liberty Financial.

About Money and Children, Cooperative Extension Service, University of Nebraska-Lincoln.

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The Allowance Question

A national survey found that children age five received on average $1.40 per week with increases to $8.25 by age 16. But should you give an allowance? Most experts say yes, but have a few cautions. They note that allowances should not be tied to chores. Each child should be expected to contribute to household activities as a family member, without an allowance as pay. On the other hand, experts say, children should be entitled to their share of their families' income because they are a member of the family.

Some tips to consider: For more information on allowances—both pro and con—try these resources:

The Allowances Site at Kid's Money, featuring: "Give 'Em An Allowance!" By David McCurrach, at the Kids' Money site.

Parents See Allowances As An Educational Tool, By Amy Nathan at the Kids' Money site.

The Kid's Money site on allowances.

CIBC SmartStart pages, sponsored by the Canadian Imperial Bank of Commerce.

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Things You Can Do Right Now to Afford College

Some experts estimate that it'll take over $450,000 to raise a kid from birth to college. And guess where the bulk of that money goes. That's right. College. If you're the parent of a newborn or young child, in 18 years, you're facing the fact that the cost of four years in a public college is expected to cost around $100,000. And a private school? Over $200,000.

Coming up with the money needed to support your children in higher education is one of the greater financial concerns—and burdens—many families share. There is no one right way to accomplish it. A financial goal like this needs a lot of thought and planning. Here are some suggestions you may want to consider to start you off:

Effective January 1, 1998, the interest paid on Student Loans is an income tax deduction. It can equal a maximum of $1,500 for interest paid on qualified educational loans in tax year 1999 during the first 60 months that the loan is required to be paid. A tax deduction is subtracted from your taxable income. Therefore, a $1,500 tax deduction reduces your taxable income tax by $1,500.

For some more suggestions about planning for college, check out some of these other online resources:

More Information on Qualified State Tuition Programs, a comprehensive site about the full scope of these savings programs.

Saving for College, from Educaid, one of the top educational money lenders.

Preparing Your Child For College, an online version of the U.S. Department of Education's resource book for Parents.

College Planning from the Wall Street Journal Magazine.

Think College Early, from the U.S. Department of Education.

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What Parents Need to Know About Working Kids

Your kids want to get a job. Hurrah, you say. But, as with any financially-oriented decision, there are a lot of things for you to both think about before the first application is filled out.

Here are some items you and your child might want to discuss before she starts pounding the pavement: On the plus side, recent changes in taxpayer legislation may help here. First, as part of the Taxpayer Relief Act of 1997, student workers who expect to earn as much as $250 in investment income will not have to have taxes withheld from their paychecks, as long as their total income isn't expected to exceed $4300.00.

Secondly, according to the IRS, if you are not earning enough to be required to file a tax return, you can ask your employer not to withhold income tax. In claiming this exemption, you must meet both of these conditions:

1) For 1999 you had a right to a refund of all income tax withheld because you had no tax liability.
2) For 2000 you expect a refund of all income tax withheld because you expect to have no tax liability.

Here are some other resources to help your children put their best foot forward when it comes to looking for a job:

The IRS' Student Guide to Federal Income Taxes

YouthRules, a splashy site for kids sponsored by the U.S. Department of Labor.

Fair Labor Standards Act, an online guide to explore wages, working conditions, and other information for young workers.

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What Kids Need to Know About Credit

Many kids think of "plastic" as the best thing on earth. Often, they see credit cards as easy means to all the ends they want or need. Seldom do they look past the initial rush of buying and having to see what can happen on the other end of the transaction.

You can start your kid's on the road top money-smart credit by talking about some of these points: For some other suggestions on ways to handle credit, check out these online sources:

Student Credit Cards: Establishing an A+ Credit History: A good look at credit for young people, created by, Inc. in conjunction with the Credit Counseling Service of Southern New England, including a clear explanation of interest rates, grace periods, annuals fees, etc.

Choosing and Using Credit Cards, a publication by the Federal Trade Commission.

Ready, Set, Credit, a publication by the Federal Trade Commission.

Students and Credit Cards, an article in Consumers' Research Magazine.

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Activities for Money-Smart Families and Communities

Let the Games Begin
Think about setting aside an evening for family games such as Monopoly, Pay Day, and Life. These games all let players pretend to be "in the money." Even though it's "pretend," the economic principles behind these games are very valid.

You may want to organize a community-wide night for games such as these. Some good partners for this may be your local church or PTA.

I'll Trade You . . .
Bartering is an economic system that's as old as the hills. Set up a special system within your family or neighborhood to barter for goods and services each of you can offer. For example, kids are usually great at computer skills. Perhaps they would want to exchange a self-made grade averaging data base for tutoring in calculus from a neighbor who's a math teacher.

You can start this project off by making up a survey that asks group members to list skills, services, and goods that they would like to exchange. Together, decide on rough equivalents to use, and a good record-keeping system.

What's for Dinner?
Give your children a food budget for the week, and let them use advertisements and circulars from neighborhood stores to plan a week's worth of menus. Encourage them to find the best buys for the types of food your family needs to purchase, and to gather as many coupons as they can find for the products you'll need. But, remember, man does not live by pasta alone. Remind them to plan nutritious meals that fit your budget that the family will actually eat.

Why do You Buy?
As you watch television programs with your children, take a good look at commercials, particularly those that advertise toys, videos, and games aimed just at kids. Ask questions like: What are they saying about the product? Is that a good reason to buy it? What about spokespeople? Because someone says that a product is great, does that mean it actually is for you? Where can you find other product information about the true worth of the product? Why do people make commercials in the first place? What aren't they saying about the product?

Sort it Out
Sorting out accumulated change can be an activity for the whole family. The youngest members could group the coins that are alike together. Others can group the coins into dollar amounts and place them in rolls. Be sure to total the amount of all your coins. Many people are surprised at how much their "spare change" is really worth.

Do you have other suggestions that money-related activities for families and/or communities? We'd love to hear from you.

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Money-Smart Online Activities for Kids and Families
Before you try these out with your children, you should "test drive" them to see if they are age- and developmentally-appropriate. Some of these activities are sponsored by financial institutions. We do not endorse any of these sites or their sponsors, but offer them as places you may find helpful as you and your children talk about personal finance.

Extra Money Scramble A scrambled word game that teaches some of the basics of saving developed by the Consumer Credit Counseling Service that's most suitable for younger kids.

SmartStart's Allowance Room: In this interactive game sponsored by the Canadian Imperial Bank of Commerce featuring allowances, kids explore "must-have" items, find out their cost, and determine how long it'll take them to save enough money to pay for them.

BLS Career Information: Find out about tons of specific jobs—exploring what workers do, what the job is like, how to prepare for the job, what the future of these jobs is like, what the job pays, similar jobs, and links to information about the job. Covers everything from Architect to Zookeeper, and everything in between.

Jump$tart's Reality Check: Do your kids think they're going to move out into their own apartment, join a gym, go clubbing, and drive an SUV? Let them try Jump$tart Coalition's Reality Check to see what all their dreams will cost.

Moneyopolis: A pro bono effort by Ernst & Young LLP, Moneyopolis helps kids enhance their basic math and finance skills. The game incorporates a "virtual city" in which children move through various financial planning centers, managing money and working toward defined goals.

Wise Pockets: A koala bear named Wise Pockets tells stories about responsibility and other financially- related values for younger children. At the completion of the story, users answer questions about the story and a re rewarded with printable activities and game memorabilia.

Test your Money Smarts: The Securities and Exchange Commission has set up this site to help you assess what you know and what you need to know.

KidsBank.Com is a tutorial website brought to you by Sovereign Bank that explains the fundamentals of money and banking to children. Characters such as Penny and Dollar Bill tell kids stories about the history of money and the fundamentals of saving, spending, and investing.

Lemonade Stand: Yep. It's the electronic version of kids' classic first foray into the world of money -- having a lemonade stand. Only this time, there's none of the mess. The kids will also learn all sorts of things about businesses, including supply and demand, business costs, gross vs. Net, and much more.

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