Kid Stuff
It's time for parents and children to talk over a taboo topic: money
SHOW THEM HOW TO SAVE. No child is born with an innate knowledge of the banking system. So parents should consider teaching their kids the mechanics of saving early on. For kids in grade school, take the child to the bank and open up an interest-bearing savings account for them.
Bert Whitehead, a Franklin, Mich., financial planner, suggests parents of young kids teach them the 40-30-20-10 rule for their allowance and cash gifts. Under this guideline, kids apply 40 percent to long-term savings; set aside 30 percent for big-ticket purchases, such as a bike or a video-game console; spend 20 percent immediately (so that it's not all about deprivation); and earmark the final 10 percent for charity.
Christopher Parr, vice president of the planning firm Financial Advantage, says it's important to teach kids at an early age that handling money is more than simply earning the maximum interest--it's about doing the right thing. "If you don't plant the seed early, they may not understand," he says.
As kids reach junior high, parents can help them invest their long-term savings in a child-friendly mutual fund--one with low fees and low balance requirements. Even better, Patricia Brennan, president of Key Financial, a planning firm in West Chester, Pa., suggests opening a Roth IRA for kids who work part time. This will not only teach them about compound interest but will also allow them to learn about the importance of managing taxes. And when a kid hits high school, consider opening a checking account in his or her name. The idea, according to the Gallos, is to get kids comfortable with writing checks and balancing checkbooks before they leave home for college or work.
BE PROFESSIONAL WITH MONEY. Kids won't take money seriously if parents don't handle it with respect. This is why Ellen Weiss always gives her children their allowance at the bank, on the day she receives and deposits her paychecks from work. "I can't go to my boss and say, 'I just saw a great pair of shoes, so can I have my pay a few days early?' " says Weiss, marketing director for the financial advisory firm Leonetti & Associates in Buffalo Grove, Ill. So Weiss wants her teenage daughter and son to learn that their allowance is like a paycheck.
While some may regard this as unnecessarily formal, the message to kids is that money--whether it's $10 or $10,000--is serious and should be treated as such. "The goal of all of this," says Weiss, "is to raise a child who is independent."
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