Kids and money: FAQ

Marketplace Staff Nov 10, 2009

Click on the questions to go to the answers:

Q: What’s the best way to handle giving my kids an allowance?

Q: How do I teach my children the difference between needs and wants?

Q: How do I teach my kids to be responsible with their money?

Q: What is the right age to start talking with my kids about money?

Q: How should I introduce the concept of credit and more complicated personal finances to my kids?

Q: What strategies can I use to teach sharing and charity?

Q: How about some unusual ways to teach kids about money?

Q: What’s the best way to handle giving my kids an allowance?

A: From Bonnie Nevel, Environmental Writer, and daughter Rose Newell, 9, of Chapel Hill, N.C.

Bonnie: We started giving Rose an allowance when she turned 6. I decided that we would use it as a money learning tool, as opposed to a reward system for chores and things, because it was important to me for her to understand that as a family member she had obligations around the house that were different from being paid for things. We decided to parse it out a little for her, because she was so young.

Rose: It’s $2 every week. That’s for my wallet and then I usually get, like, a dollar for charity and a dollar for savings.

Bonnie: When she got her allowance, or when she had a few weeks’ worth of allowance, she would just want to buy something with her money. It almost didn’t matter what it was. She just wanted to spend that money.

Rose: Yeah, I saved, I spent, I saved, I spent. And I did that for a while.

Bonnie: And I’ve noticed recently that she’s actually much more thoughtful now about whether it’s something that she really wants or whether it’s just fun to spend money. Rose, I can think of times that you’ve saved up a lot and did a big spending, one with the guinea pigs.

Rose: So, I decided that I wanted guinea pigs, because you can actually pick them up and they’re soft. We did this whole adding thing, and we added up all the supplies and everything, and it was like $260. I was like, “Oh my gosh! That’s a lot of money!” So I had all my bank account, which was like $70, I’d say. And then I had, like, $40 from two birthday money and Christmas money, and then I had all my allowance. So I saved up for a while. And after a long time, now I’ve got two happy guinea pigs.

Bonnie: You know, spending money is a part of life, just like saving money. And it’s been nice to see her think more about how she wants to spend it.

A: From Rabbi Ruth Abusch-Magder and Dr. David Abusch-Magder, parents of Oren, 12, and Aliza, 9, Los Angeles:

Ruth: We give our two children an allowance. Part goes into a long-term-savings bank, part to charity, and part they can spend without much deliberation.

When we began thinking about allowance we thought about what our goals were for our kids and their understanding of money. I certainly did not like the idea that they would want everything, nor did I relish the idea of saying no all the time. An allowance seemed to be the best way to give them some control and a means by which we did not have to do battle over every little thing. We also wanted the kids to understand the concept of saving.

To encourage the savings we set up a spreadsheet called the Bank of Abusch-Magder which plots how their savings build over time. They get to see their money growing and make plans for big items that they want. Aliza got an American Girl doll and Oren bought an iPod. For the most part, they’re now savers who choose to wait for big ticket items, and we have limited in-store battles.

David: We also include interest in the Bank of Abusch-Magder. By including this on the spreadsheet the kids can really see the value of saving. The spreadsheet also makes it easy for me to put in a proposed purchase and the kids can see the impact not only on their balance but on upcoming interest payments. This really catches their attention and strongly encourages savings.

Interest is paid every four weeks (since it was easier to build the spreadsheet that way than monthly) at an annualized rate of 10 percent. In reviewing the spreadsheet the kids clearly see how their interest compounds and how saving money means they make more money.

Q: How do I teach my children the difference between needs and wants?

A: From Billy Warden, marketer/writer, father of William, 11 and Rae, 9 of Raleigh, N.C.:

My advice? Approach money in a way that makes your kids feel like they’re mastering one of the great forces of the universe. Make them feel like they have one up on the world.

It’s crucial to help kids know how to prioritize by drawing a distinction between wants and needs. Do you really need something to get on with your life? Or do you just want it because it’s cool? If you just want it, take a day or two before you buy it or before you ask someone else to buy it for you.

My kids watch and assess commercials very critically. Often my daughter scoffs at TV pitches: “Dad, who would ever think they need a doll that wets its pants! That’s just dumb!” The drawback is that wants/needs are somewhat subjective. My son really thinks he needs the Star Wars deluxe video collection.

Toys and games come under heavy scrutiny in the wants/needs approach. Is this toy going to be more than an amusement for a couple days? Is it just like something you already have? Then it’s probably a want you can do without. Or is this toy going to teach you something or improve a skill or launch a new hobby? Then it may be something you need. Mostly toys are wants, and you prioritize from there.

Q: How do I teach my kids to be responsible with their money?

A: From DeDe Jones, financial planner/managing director of Innovate Financial, mother of twins, 16:

DeDe Jones: I want my children to respect money for what it is: simply a potential. In other words, I don’t want them to love or want money just for the sake of the money itself. At the same time I want them to be able to live in a fiscally responsible way.

One of the things we do is make sure that our children have to make decisions about how to use their resources. For example, this year each of the kids gets $40-per-month allowance and one tank of gas per month. They each have a car (used). If they drive to school separately, then there is very little gas left to go to the movies or a friend’s house or whatever.

However, if they carpool whenever possible, they have more freedom. Same thing goes for making lunches to take to school. If they make their lunch, they don’t have to spend their allowance. I hope to help them learn about setting priorities and planning ahead.

A: From John Lanza, creator of the DVD “The Money Mammals: Saving Money Is Fun,” father of two girls, 6 and 4, of Los Angeles.

We have focused on three areas: 1. Use an allowance and have the kids make money choices by employing a three-jar system: share (donate/charity), save, and spend smart. 2. Setting goals: Establishing achievable savings goals is so much better than trying to teach your kid to save for a “rainy day.” 3. Start early: We’ve found that 4 or 4-1/2 is a good age to start allowance.

My [6-year-old] daughter, Quinn, saved for her first goal, a scooter, over a period of about two months. It was incredibly exciting and gratifying to go with her to the store for that purchase. Making an allowance effective, though, requires consistency, and it’s something with our hectic schedules that we are always striving to achieve. You also have to be prepared to give them control of their spending money and to let them make mistakes. The hope is that small mistakes now can help prevent big mistakes later.

Q: What is the right age to start talking with my kids about money?

A: From Laura Levine, executive director of the Jump$tart Coalition for Personal Financial Literacy, mother of Stephen, 4, of Washington, D.C.

I think saving is one of the most important lessons to teach kids of any age, but how do you give value to a saving experiment for children too young to count money? We took a plastic milk jug that is transparent enough to see coins inside. We drew a line about 3/4 of the way up and called it our goal line. All summer, we collected coins, building up to the goal line. It’s a little imprecise, but it still conveys the message of setting a goal and saving for later.

Stephen got excited about money and saving because he could see the progress and visualize the goal. Even for kids who are starting to count you can say the goal is $20, but they may not have perspective on what it means. Besides, at this age, how you save and how much you save is less important than simply introducing the concept.

From Rachel Kryder, engineer, mother of Talya, 5, and Thomas, 18 months, of Pahrump, Nev.

Rachel Kryder: Just do it! Even if your kids may not seem especially interested now, it’s something they need to learn about. It is a life skill, just like reading, math and good manners. You can’t be confident about money without having familiarity with money. I also wish that parents would stop using the “We can’t afford it” excuse in stores when they don’t want to buy their child something that the child is begging for. Just say no, but tell them why. What I want to know is: Can you be too honest about money with your kids?

From Nancy Hammond, self employed, homemaker, mother of Elisabeth, of Huntington, Vt.

Start young. I began when my daughter was around 2 years old. When in a store she would see and want items she didn’t need or we couldn’t afford. These were great opportunities to discuss money facts. When she was a little older, I would have her hand money to the cashier and receive the change. This summer, when she wanted to buy a Nintendo with her own money, we went to the bank, withdrew the cash, and she counted it out to the cashier at Best Buy. This made the exchange much more concrete!

Q: How should I introduce the concept of credit and more complicated personal finances to my kids?

From Elizabeth Lord, medical laboratory technician, mother of Xander, 8, of Durham, N.C.:

Elizabeth: Adults get paid for the work they do, for the most part. I felt that Xander should earn any money that he wanted towards things he liked. Getting the mail or the newspaper, that’s weighted at 50 cents. His least favorite job in the world is sweeping the back porch, which is $2. And he loves to do yard work and that’s about $3, because it’s a lot of work.

Xander: Sometimes I save it, sometimes I get stuff with it.

Elizabeth: He loves Lego sets. He was looking at a $50 Lego set.

Xander: Well, it was a limited edition set. It was Space Police. I thought it was awesome. I started out with 25 bucks, then I worked up to it.

Elizabeth: Early on in the summer, when we instituted this allowance, it was still a relatively new concept for Xander. So we started off with buying him the item that he wanted. Then he would work for it — he wouldn’t be paid, he’d have to pay it back. We allowed that to happen before, I would say, a month-and-a-half, until he sort of slacked off on his chores and we weren’t getting paid back. So we notified him, like a credit company would, that he was delinquent.

Xander: I was sad.

Elizabeth: And he was sad. And I said, “Well, you’re a bad credit risk right now, so you’re going to have to earn your money before you can buy anything.”

Xander: I don’t know what Mom means by “credit.”

Elizabeth: It’s when you buy something first and then have to pay it back.

Xander: Oh yeah.

Elizabeth: So he’s been very good, so we may institute some credit again.

Q: What strategies can I use to teach sharing and charity?

A: From Nancy Hammond, self employed, homemaker, mother of Elisabeth, of Huntington, Vt.

We used three coin banks when our daughter was little: One for God/charity, one for savings, one for spending. When her allowance was four quarters, she would put one in the God bank, one in the savings bank, and two in the spending bank. One December she emptied all three banks into a plastic cup, took it with her when we went to buy groceries, and dumped it all into the Salvation Army lady’s red bucket! I was very proud of her that day, and thankful for her increasingly generous and loving heart.

Q: How about some unusual ways to teach kids about money?

A: Lee Diamond, laboratory safety coordinator, of Burlington, Vt.

My Dad did two things. First, when I was around 16, he had me take out a $1,000 loan from a bank. He had me put the money into savings and just pay the loan back month to month just to establish credit.

The second thing he did was have me take out loans for college in my name. However, he paid them back slowly until I graduated. Then I took over the payments and paid back whatever was left. It helped me to establish great credit in my own name while I was working and could pay them back.

I always worked through college so I could pay my rent, etc. My folks were just a back-up if things got tight.

From Curt Larson, retired inventor, of Hudson, Wis.

Curt Larson: At one point, my youngest daughter thought that she was getting cheated because of inflation. I challenged her to show me what an inflation-adjusted allowance would look like, and she did — thus winning a raise!

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