Teaching young children about money
Kim Ciccarelli Kantor | Naples Daily News | November 15, 2013
When I was young, learning about money was a natural occurrence in our household. My parents insisted we learn about being Entrepreneurs, and we learned that knowledge itself could create wealth. Early on, we were encouraged to read and write and were compensated accordingly – $1.00 for a poem, $5.00 for a book report. We were given incredibly large zllowances. With this money, we were responsible for our school lunches, our supplies, and recreational activities. Each of us quickly developed spending or saving habits. These habits form when children are young, and it is our responsibility as parents to help our children learn the value of money. As soon as children can count, introduce them to money. Take an active role and regularly communicate, as they grow, about your values, money and how to save it, make it grow, how to use it sensibly and most importantly, how to spend it wisely. Support your children in developing good spending decisions and learning the difference between needs, wants and wishes.
Children can absorb information quickly, and it is with perseverance we teach them the concept of compound interest. Encourage them to save. Pay interest on their savings or develop a matching program. If you give your children an allowance, say – $5.00, give it in such a way that makes saving easier. If five $1.00 bills are given, then encourage one $1.00 to be saved. The amount is not important; developing the habit is.
Teach your children/grandchildren priority spending. If they have $10.00 to spend today, what could they buy if they chose to save? Teach your child to do his homework and compare for value, quality, quantity, etc.
Encourage young people to make spending decisions, whether good or poor, and then encourage a discussion of pros and cons — before spending takes place. Teach children about spending by choice, choosing from several items, and then narrowing those choices once the decision to spend has been made.
Helping your child evaluate media and marketing ads and differentiate between expense and value can be a worthwhile education to their money success in the future. Daily, our children are encouraged to spend. Oftentimes, the item is not even needed or wanted, but nonetheless, we buy. Equally important is the ability to use credit wisely. Alert young people to the dangers of buying and paying interest. Charge interest on small loans you make to them so they can learn how to evaluate the cost of renting someone else’s money. For example, buying a bike for $499 over 18 months at 18.8% interest or $31.85 per month really means a true cost of $575.00 for the bike. In actuality, the cost is higher. The loss of earnings on the child’s money has to be also calculated. If $31.85 per month was saved at an interest rate of 6.0%, the total would equal about $620 after 18 months. The child could then pay $499 cash for the bike and still have $121 in savings.
Credit cards for young children can be a learning experience or a disaster. Emergency use can be helpful, or having a credit card to establish good credit is fine, but a child should learn that credit cards should not be used for cash advances, or “wants” when the money is not available to pay cash. The National Center for Financial Education (www.nationalfinancialeducationcenter.org), offers books and resources for young children and young adults that encourage proper education. These are great birthday gifts or Christmas stocking stuffers.
Establish a regular schedule for a family discussion about finances. Topics can include spending, use of credit, savings, investment growth, and the effects of the earning. Be creative. Above all, teach your children/grandchildren that money is relatively unimportant, and the way to keep it this way is to have it, respect it, so that we may concentrate our energies on the real priorities of life. Help to assist your children/grandchildren to develop a net worth, cash flow statement and implement a spending plan. The basics will remain through their lifetime. The differences will mostly be in adding zeroes to the numbers as the years go by.
Good luck! Good Teaching.
Kim Ciccarelli Kantor, CFP® CAP™ is president and founder of Ciccarelli Advisory Services Inc., a Family Focused Wealth Management Firm in Florida and New York.
