1) As soon as children can count,
introduce them to money. Take an active role because repetition
and observing others are the two methods they learn by.
2) Communicate with children, as they grow, about
your values concerning money and how to save it, make
it grow, and most importantly how to spend it wisely.
3) Helping children also learn the difference between
needs, wants and wishes. This will prepare them for making
good spending decisions in the future.
4) Setting goals is a fundamental concept to help
young people learn the value of money and also how to
save. People, young or old, rarely hit targets they don't
have. Nearly every toy or other item children ask their
parents to get for them can become the object of a goal
setting session. Benefits of saving to achieve the goal
is an important aspect and provides built-in motivation.
Goal setting for good grades, toys or savings, helps children
learn to become responsible for their own futures.
5) Indoctrinate your children to accumulation (or
savings) instead of spending( or consumption). Explain
and demonstrate the concept of earning interest income
on savings. Consider paying interest on money saved at
home. Have children help calculate the interest so they
can learn and see how fast money accumulates through
the magic power of compound interest. Later on,
they will also realize that the quickest way to a good
credit rating is a history of regular successful savings.
Some parents offer to match what children save on their
own. "It is a time tested way to get them started,"
says Kiplinger's Personal Finance Magazine. I read
of one couple who had their children pay one-half the
cost of all their playthings over the years. They handed
it back to them with interest at their children's college
graduation. It averaged over $2,000.
6) When giving children an allowance or income,
give the money in denominations that encourages saving.
For example if the amount is $5, give out five $1 bills
and encourage at least one be set aside in savings. (Just
saving $5 a-week at six percent interest compounded quarterly
will total about $266 in a-year, $1,503 in five years
and $3,527 in ten years.)
7) Introduce U. S. Savings Bonds to children. Take
them to the bank when you make the purchase. Bonds are
still a good value, cost one half the face value, earn
interest and in some instances, will be tax-free if. used
for a college education. Perhaps more importantly, when
given as a gift, they will not be immediately spent -
and this will reinforce savings and goal setting lessons.
8) Take the youngsters with you to a credit union
(or a bank) when you open their savings accounts. Beginning
the regular savings habit early is one of the keys to
savings success. Don't refuse them when they
want to withdraw from savings for a purchase or you'll
risk discouraging savings all together.
9) Keeping good records of money saved, invested
or spent is another primary skill young people must learn.
To make it easy, use 12 #10 size envelopes, one for each
month and a larger envelope for the year. Establish this
system for each child. Encourage children to keep receipts
from all of purchases and then make notes.
10) Going to the grocery store is usually one of
a child's first spending experiences. About a third of
our take-home pay is spent for grocery and household items.
Spending smarter at the grocery store (using coupons,
etc.) can save more than $1,800 a-year for a family of
four. To help young people understand this lesson, demonstrate
how to plan a meal, how to use planned leftovers. Before
actually going to the grocery, check to see what items
are on sale, what could yield a coupon savings, etc. Encourage
checking store ads and comparing prices weekly. Also,
the use of lists and coupons and also how to shop by the
by unit price.
11) Take children with you to other stores, explaining
how to plan purchases in advance and make unit price comparisons
and also checking for value, quality, reparability, warranty,
etc. Spending money can be fun and very productive when
spending is planned. Unplanned spending however, usually
results in 20-30 percent of our money being wasted because
we obtain poor value with many purchases.
12) Allow young people to make spending decisions,
both good and poor, and then encourage a discussion of
pros and cons before more spending takes place. Encourage
them to employ common sense when buying. That means research
before making major purchases, waiting for the right time
to buy, and employing the spending-by-choice technique
which is selecting at least three other things money could
be spent on, once it has been decided to make a purchase.
13) Show children how to evaluate ads on TV, radio
and in print. Will the product really perform and do what
the commercials say? Is it really a sale price? Are there
alternative products available that will do a better job,
perhaps for less cost? Just because something looks expensive,
doesn't mean it represents the best value. Remind them
that if something sounds too good to be true, it usually
14) Look into joining a credit union, if you are
not a member already. They usually have a good youth program
that encourages savings and reinforces what you teach
at home about money. Explain to young people about the
advantages of member-owned and operated credit unions
- i.e. higher savings interest paid, lower borrowing costs,
etc. - which is why over 57 million Americans belong to
15) Alert children to the dangers of borrowing
and paying interest. Charge interest on small loans you
make to them so they will learn quickly how expensive
it is to rent someone else's money. Credit is all about,
renting another's money for a specified period of time.
For instance, paying for a $499 TV over 18 months, $31.85
a- month at 18.8 percent interest means it cost about
16) If parents are using credit cards, at a restaurant
for example, take advantage of an opportunity and explain
to children how to verify the charges, how to calculate
the tip ( a tip should never be calculated on the sales
tax portion of the tab) and how to take safeguards against
credit card fraud. Explain also how and when you plan
to pay for this and other charges children have observed.
17) Be cautious about making credit cards available
to young people, even when they are entering college.
Credit cards have a message: "SPEND!"
Some students report using the cards for cash advances
and also to meet everyday needs instead of an emergency
(as originally planned). Many students in that group also
reported having to cut back on classes to fit in a part-time
job just to pay for their credit card purchases.
18) Using a calendar, establish a regular schedule
for a family discussion about finances. This is especially
helpful to younger children. the time when they count
their savings and receive interest on their savings. Discussion
topics should include the difference between cash, checks
and credit cards and also wise spending, how to avoid
the use of credit and the advantages of savings and investments
growth. With teenagers also discuss the effects on the
economy - of inflation versus deflation - on how to economize
at home, and alternatives to spending money. Some examples
are borrowing an item, bartering, making it yourself,
or a one-time rental or buy used, etc.
SUMMARY: Money gives people - both young and older
- decision-making opportunities. Everyday spending decisions
can have a far greater negative impact on your children's
financial future (and yours also) than any investment
decisions they (or you) may ever make. Educating, motivating
and empowering your children to become regular savers
and investors will enable them to keep more of the money
they earn and do more with the money they keep!