Kid Stuff
It's time for parents and children to talk over a taboo topic: money
"Saying no is one of the hardest things a parent can do," says his mother, Annette. But that's what she and her husband, Alexander, have decided to do. The 33-year-old Annette, a real-estate agent, says Alex already has his fair share of games and toys. And teaching him and his younger sister, Emily, that they can't have everything "is the first real lesson they'll learn about handling money."
SHOW THEM THE MONEY. It may sound simple, but the only way kids will truly learn to handle money is if you give them some to handle.
Well, aren't parents already doing this, in the form of allowances? Actually, no. The fact is, only 30 percent of so-called tweens--kids ages 8 to 12--and only 27 percent of teenagers get a regular allowance. "We're not giving our kids the individual responsibility to understand how to handle money," says Cary Silvers, GfK NOP's vice president for consumer trends.
Yet kids, when given their own money, often manage it wisely. Silvers notes that kids who are given cellphones by their parents are apt to sign up for all the bells and whistles, such as text messaging and photo options. But when kids get older and are forced to pay for cellphone service on their own, many opt for just basic service.
GIVE THEM A BUDGET. Giving kids an allowance only teaches half the lesson. While allowances provide children with income, kids must also learn at an early age that they have obligations to meet with that money.
For young children, Leitz recommends starting small. On family vacations, give kids a small amount of spending money and let them budget it. That's what Leitz, a financial planner in Colorado Springs, Colo., did with her 12-year-old daughter on a recent trip to Disney World. The trick, she says, is "not to bail them out" if they blow their entire stash on candy on the first day of the trip.
Eileen and Jon Gallo, authors of The Financially Intelligent Parent, advise giving teens a clothing budget instead of simply buying their clothes. The couple's Gallo Institute teaches families and advisers about the psychology of money. By giving your teens the power to make their own clothing purchases (within limits, of course), Jon Gallo says, "they're going to see that those designer jeans they want may cost a third of their clothing allowance."
"We did this with our youngest," says Eileen Gallo. She adds, however, that parents must be strong enough to allow the kids to make mistakes by exceeding their budgets. This will force them to return extravagant items should they run out of money.
What if your kids aren't that responsible? It doesn't matter, family financial experts say. They argue that it's better for kids to handle money and learn from their mistakes early--when failure means blowing through a modest weekly allowance--rather than waiting until the child goes to college and failure means maxing out a $5,000 Visa card.
SHOW THEM THE TIME VALUE OF MONEY. It's fine to teach kids that there's virtue in saving money for the future. A more powerful lesson, however, is teaching them that the world literally rewards those who save. To do that, kids have to understand the basic concepts of compound interest and the value of money over time.
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