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WANTED: FINANCIALLY RESPONSIBLE KIDS

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    Surely, in this era of the “Great Recession,” every parent wants their children to know how to manage their finances. Studies show that children are not learning about money at school or elsewhere. So, it’s up to parents to teach kids money management long before they land their first jobs. That takes time and commitment. 

    Need help getting started? Then check out Kansas City writer Jack Jonathan’s highly practical guide, Yes, You Can! Raise Financially Aware Kids. Jonathan emphasizes teaching children the basics of money management:

An allowance is the best way to simulate real-world experiences that will instill these lessons in your children’s lives.

Laying the Ground Rules

Before diving in, Jonathan advises parents to prepare to give an allowance and commit to evaluating allowances. This involves answering the following:

    Jonathan and many financial writers agree it is not wise to tie allowances to chores, good grades or good behavior. Usually, these efforts are counterproductive, as they undermine the family unit’s working together, and the child fails to learn the value of a job well done. 

    Most parents do want their children to learn that one earns money in exchange for work performed and they often view allowance as a way to deliver that lesson. If this is part of your allowance philosophy, then tie larger chores (mowing, cleaning the garage, window washing) to earning extra allowance, but keep the basic allowance separate from household chores. Instead, have your kids accept responsibility for some of the expenses you pay for anyway, such as toys, clothes, electronic games and other entertainment. This eliminates a showdown when chores are not done and the parents do not want to pay the allowance. Show your children that you are providing for their actual needs, but that they are responsible for optional items, such as entertainment or designer clothes. 

    If you are not ready to manage an allowance, you may want to teach your child to manage a budget. I did this with my then-11-year-old daughter when she began demanding expensive clothes. We worked out an annual budget and put her in charge of buying her own clothing (beyond her school uniform). We estimated how much she could spend on each item and kept track of her expenses as she shopped. Although it was a hassle to review the budget each time she bought something, it taught her how much the clothes she wanted really cost. Now, instead of shopping strictly by brand, she looks for sales and shops at consignment stores.

Rainy Day Funds 

    Besides showing your children how to save their earnings to buy things, it is critical to teach them long-term saving. This is best accomplished by opening a savings account in the child’s name. Most banks have kids’ programs with incentives for saving and investing. If possible, offer to match the funds your children put toward their savings. Fae Burgoon, manager of the Dollar Bill Club at Platte Valley Bank, encourages parents to restrict savings withdrawals and to remind the child that the goal is to save. For younger savers, she recommends making the trip to the bank an especially fun outing. Also, she suggests reviewing the bank statements together to show them how their accounts grow over time. 

    Involve kids in bill paying, showing them the “pay yourself first” motto – making a savings deposit before anything else gets paid. Bill paying shows kids what it takes to run a household, including making donations and giving gifts.

Sharing and Borrowing 

    Kids will need your help with these concepts. Make it visual, especially for younger kids, by placing their earnings in separate see-through containers labeled: spend, save and share. Seeing where their money goes (and savings grow) will shape good spending/saving ratios. Take youngsters to the bank to make a deposit once their savings containers reach a certain level. Similarly, help them select a charity that matches their interests and make regular “payments” here also.

Managing Credit – Priceless? 

    Whether we like it or not, the financial system runs on credit and children must understand how this works, preferably before leaving home. Identify a large purchase that your teen or older child wants to make and set up an in-house loan with interest. This way, you walk them through the consequences of missed payments instead of them defaulting on their first loan or running up excessive credit card balances. 

    Prepaid cards are an effective way to teach teens to manage their spending. PayPal Jr. is an online option, but you can also secure similar cards through local institutions. This arrangement keeps parents in control of the total spending amount, yet gives the teen freedom to manage the daily spending. It’s a credit card with training wheels, so to speak. 

    Teaching your kids financial responsibility may seem burdensome at times, but – like other parenting moments – it has its rewards. And, when you see your children managing their money you can relax, knowing they are becoming financially capable people who will lead balanced lives. 

    

    Kathy Stump writes from Parkville, Mo. Her two children receive an allowance; one is a saver, the other a spender.

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