NEWS AND RESOURCES

Financial Planning for August 2006

Kids and Money
Letís face it, sooner or later, that cute little cherub in the crib will be an 18-year-old heading off to college. Four years after that, hopefully the little angel will graduate, but will your baby be in debt up to his or her eyeballs? There is a fair chance that your child will be debt laden by graduation time, unless you can instill an appreciation of money management in him or her before then. Thatís what we are going to talk about this month; how to help your kids understand the value of money.

Itís never too early to learn.

Ok, your one-year-old probably doesnít care about money and how to spend it, but your five-year-old will care that you have money when youíre in the checkout line at the grocery store. How many times have you heard, "Can I have some gum?" or a plea for some other impulse item on display?

If your child knows how to spend money, and can count, itís time to start introducing them to the concept of finances. Show him or her what money looks like, how itís used and, most importantly, that you have to give some of your cash in exchange for that pack of gum or chocolate bar.

As your children grow older, communicate to them how you feel about money and money management. Give them chores around the house and place a monetary value on some of those duties. This will introduce them to the concept of working for money just like you do.

As your child earns money, start teaching them about the concept of saving and spending their earnings. The percentage of savings is up to you, but get a jar or other see through container that will enable them to see their money add up. After enough cash is accumulated, start a small savers account at your bank for your child.

If you are so inclined, while youíre negotiating (or demanding) the savings goal, this would also be a perfect time to establish the idea of giving to charity. Patterns learned early in childhood will stay with them as they reach maturity.

As your child grows, he will be better able to understand the difference between needs and wants. As adults, we are constantly faced with determining the necessity of a purchase. The earlier your child learns how to make the distinction, the better chance he will have of making wise spending decisions in the future.

Make your child work for some of those things she wants. Too often, parents want to give their child the world. As a result, the child doesnít learn that you have to give something up (like your time) in order to earn the money you have. Teaching Junior that he canít go out and play because he has to complete his chores will give him some insight into what you go through every day.

As your child is maturing into adulthood, take the time to explain the ins and outs of credit cards. Many children see their parents purchase something with a credit card and assume thatís the end of the transaction. They donít see you pay the bill when it comes in each month. Show them that there is a monthly reckoning when the credit card company asks you to pay up with real money.

Teens

By the time your child enters the teenage years, hopefully they will have a grasp on the fundamentals of earning and handling money, but their expenses will likely grow during this time, too, as they start dating, driving the car, and so on. This is a good time to introduce the budget.

Sit down with them and help take stock of their resources, including allowances, outside jobs, etc. Then take a look at anticipated expenses. As you and your teen budget, you will be able to reinforce the concepts of needs vs. wants.

Sixteen or seventeen is a good time to establish your childís first checking account. In addition to depositing the money your teen earns, you can deposit funds to purchase clothing and other items you deem necessary. Make sure your teen knows how much you are depositing and what it is to be used for. It can be a wonderful thing to watch your daughter balk at the price of designer jeans when sheís on a limited budget.

Payoff Time

All of this education is leading up to the time when your child is ready to leave the nest. Itís a good bet that as soon as he is accepted to college, he will start receiving credit card offers. Above all, you want him to realize it is not free money and he shouldnít charge more than he can pay off when the bill arrives.

Unfortunately, more and more students are getting into debt and carrying it with them when they graduate from college. Thatís because itís too easy to give into temptation when Ďeveryone elseí is out on the town, but they are broke. Credit cards are the perfect way for college students to pay for entertainment and recreational expenses, when, repayment is the furthest thing from their mind. As a result, they spend more than they should and start building a bigger and bigger balance. With an appreciation of the value of money, and good management skills, your child stands a better chance of avoiding the credit card trap that has ensnared so of todayís college graduates.

Concluding Thoughts

We teach our kids how to ride bicycles, play sports, and many, other things, but we often fail to impress upon them the need to manage the limited resources they have. One of the best things you can do as a parent is help your child understand the value of money and how to manage it. You will truly be preparing your child for the "real" world and, after all, isnít that your main job?

Have a great August.

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