Parents must teach kids about financial realities
By Cary and Tonja Rector
What parent has not gone through the experience of trying to make a quick stop at Target for a specific item when their preschooler spots a toy he wants. This is not the best time to start teaching your child about resisting impulse buying.
One goal of parenting is to teach your child to become independent and productive. This covers a lot of territory. Parents we work with often ask how money should be given, earned, saved and spent by their children. Similarly, when we look at family dynamics, we frequently ask how the family earns money and how money is spent—often an area of conflict.
Parents can teach even young children how to be smart consumers. Young children can begin to understand that people have limited amounts of money, and they can participate in simple transactions. Parents can introduce the concept that if you spend money on one item, you have less money for another item. Television commercials, as most parents have experienced, are very effective at swaying children’s thinking. But parents can begin the process of helping children understand “what you see is not always what you get.”
With older children, parents can talk about the difference between needs and wants. They can also teach about how some money received can go toward savings. The best way to teach kids the value of money is to give them some of their own.
We usually encourage a weekly allowance. A general guideline, depending on household finances, is an allowance equaling half their age in dollars. Chores, however, are not usually connected to allowance. Feeding the dog or unloading the dishwasher is part of helping or contributing to the family group.
Allowance should have few strings attached. A parent can take an advisory role and offer suggestions and guidance; however, the idea is for kids to learn money management. It’s difficult for parents to watch kids sometimes squander their money, but buyer’s remorse can be a valuable lesson.
When your child reaches adolescence, help her set up a savings or checking account, or both. Teach how to track transactions and balance bank accounts. These are important life skills, ones she will use the rest of her life.
We suggest establishing a simple budget for events, like shopping for school clothes. Your child will have a set amount of money to spend. There are many teachable moments in this buying process, including making a list of what is needed, comparing different brands and prices at different stores or online sites. If your child wants a particular brand, help him determine what the tradeoff will be for other items on his list.
There are smart phone apps allowing you to compare store prices. The shopper scans the bar code and the app displays prices from stores in your area or on the Web. For additional ideas about smart buying, check out the Federal Trade Commission’s website, You Are Here (www.ftc.gov/youarehere). It’s a virtual mall with interactive activities focusing on key consumer concepts such as how advertising affects you, how you benefit when businesses compete, how (and why) to protect your personal information, and how to spot scams.
Michelle Singletary, a nationally syndicated personal finance columnist for The Washington Post, has suggested people reduce the amount of time spent on consuming. She is teaching her children to treat shopping as a chore to be done quickly and without fanfare.
She recommends not using shopping as entertainment. She talks about teaching children to spend the money they have well and to be careful not to consume when you don’t have the money. She cites a survey by Charles Schwab, which found most American teenagers believe as adults they will earn an average salary of $150,000. However, many will earn significantly less; the median household income in the United States is about $50,000. She feels this disconnect between what they think they will earn and what they actually bring home contributes to amassing large debt as adults.
Teaching money management skills begins as soon as children are old enough to want to purchase an item. It’s a long learning process, one they will grow into with age and practice. By the time they are ready to leave home, they should be able to budget, comparison shop and balance a bank account. When they are older and discussing the latest “must have” item, how satisfying it is to hear them say “and then I decided I didn’t need it and couldn’t really afford it.”