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.
- By age three, most kids understand that money can be exchanged for something
they need.
- By age six, kids begin to realize how money is earned, saved, and spent.
- By age eight, families should begin to explain how businesses operate and
how investors buy and sell stocks.
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:
- Give age-appropriate allowances. The suggestion is between 50 cents and
a dollar for each year of age.
- Give them an allowance in bills that encourage savings -- use five one-dollar
bills instead of a five-dollar bill, for example. You may also want to consider
giving them equivalent amounts of coins each week. For example, a dollar
allowance could be given as four quarters one week, a one-dollar bill another,
and perhaps as 10 dimes the next. This helps kids see money equivalents,
and gives them a head start on looking at equations.
- Establish a base allowance and if kids want more money, let them negotiate
for other chores at established rates that you discuss before hand. In addition
to traditional chores, they may want to clip coupons for your shopping ventures,
or collect recyclables to turn in for cash.
- Keep good records of these transactions. Sit down together weekly and review
these records.
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:
- Get an estimate of what it will cost for college . . . now or later. Use
any of the Sallie
Mae (a registered service mark of the Student Loan Marketing Association)
calculators found at the link above.
- Save in your name. About 35 percent of what is saved under your child's
name is tapped for tuition when college's figure out the financial packages
they offer to students. About five percent of your savings is considered
in that computation.
- Think about using state-sponsored funds for starting early to pay tuition
costs or setting up an Education IRA. Both savings plans are exempt from
penalties if the money is used to pay for education. Withdrawals from a traditional
IRA can also be made without paying the ten percent early withdrawal penalty.
If a Roth IRA has been established and funded for five years or more, you
can use earnings from the IRA for education costs penalty-free and tax-free.
- Check into government-sponsored
programs and loans, as well as and private loan programs. What kinds
of assistance will these sources be able to offer when the time comes for
college enrollment? For example, in 1998, the federal government established
the Hope Scholarship Tax Credit and the Life-Long Learning Credit. The IRS
has information about both programs...just click the link above.
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:
- What kind job should your teens get? Help them think about what they like
to do, what their skills and aptitudes are, and how those fit into the current
job market.
- Your child may need a work permit to be able to get a job at a young age.
Check with your school or local government to find out the process you should
go through to obtain a permit.
- Together, you should decide on the number of hours your child can work
during the school year and still maintain current activities and homework
schedules. If schoolwork suffers, all the money in the world won't help.
When looking at the schedule, don't forget to factor in expected chores at
home, social engagements, and sports events, as well as any other commitments
your child currently maintains. On the plus side, however, holding down a
job and maintaining good grades looks spectacular on college applications.
- Job seekers should always bring a resume along when they apply for a job—and
a small stapler to attach it to their application. Their resume should include
information about school, grades, attendance, extra curricular activities,
honors, volunteer work experience, and skills. You may want to help them
prepare it.
- Talk about gross and net . . . salaries that is. It's a very good idea
to discuss the difference between earnings and take-home pay well before
the first check arrives, so there are no surprises.
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:
- Credit cards are basically easy ways of borrowing money. Sometimes you
have to pay a fee just to borrow the money. That money has to be repaid in
a timely fashion. If you don't repay the money, you have to pay extra for
the privilege of keeping the money. Use this basic equation to talk about
grace periods, interest rates, and annual fees.
- Just because "they" say you can have a credit card doesn't mean that you
should have a credit card. Credit card solicitations are often sent for a
variety of reasons. Make sure that your children can meet the financial obligations
they carry with them before they sign on the dotted line.
On the other hand, your kids should establish credit before they go out on
their own. There are a couple of ways of doing this. You can get a credit
car at a local store (make sure they report credit activity to a credit bureau)
and handle your credit there responsibly. You can also cosign a credit application
with your children. Getting a secured credit card is a third option. With
these cards, your line of credit is a certain percentage of money deposited
in a savings account at the bank.
- Shop around for the "best" card. Try to get a no-annual-fee card with a
grace period during which you can pay your bill without interest accruing—and
the lowest APR (annual percentage rate of interest charged on balances) possible.
- Credit cards have a lot of other associated problems, and credit card numbers
should be protected as if they were money—because they are. Never give
a credit card number to someone who calls you on the phone. Keep copies of
all receipts and check them carefully against charges when you get your monthly
bill.
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 StudentMarket.com, 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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