Date: Monday, March 08, 2010, 5:13 am
By: Mellody Hobson, Special to BlackAmericaWeb.com
I want to teach my three girls – ages five, eight and 15 – how to be fiscally responsible. Do you have any suggestions? Carmen, New York, NY
Teaching kids about the value of money is one of the most important lessons Carmen can do for her kids, and I’m so glad to hear that she is thinking about it. Unfortunately, a recent study shows that 20 percent of parents have never talked to their kids about the basics of money, so many end up learning by trial and error. Given the economic events we have just weathered (and are still coming out of), it is critically important that kids be taught, at a minimum, about the basics of how to manage a budget, save and invest. Teaching them these skills will help them to avoid costly mistakes in the future.
So, what is the best approach for getting started?
Start talking about money early, focusing on basic concepts through games for younger children and advancing in sophistication, using real-life examples, as the child gets older. For example, in the case of Carmen’s five-year-old, the conversation can start with the difference between coins and bills. From there, Carmen should start talking about the value of things by having her five-year-old assign a dollar value to her toys and perhaps even bartering — like asking the child if she thinks trading her Barbie for a cupcake is a fair exchange. For her older girls, there are also some great Web sites that teach the fundamentals of money to younger audiences, such as http://www.TheMint.org, a non-profit site that has fantastic interactive tools and games for kids and teens. This Web site also offers a newsletter entitled Perfectcents, which targets young teens, middle school through high school. This newsletter is easy to read and addresses issues that families face every day.
How can you teach kids about the concepts of spending and saving?
I’ll start with a personal example. When I was a child, my mother taught me about spending by making me settle the bill when we ate out, whether it was McDonald’s or a sit-down restaurant. This not only honed my math skills by teaching me to make change and calculate the tip, but more importantly, I learned the relative costs of items. For example, I realized that the meal at McDonald’s cost a fraction of the meal at the fancier restaurant. In another childhood example, I once ordered an orange juice at a hotel that cost $8.00, and I recall my mother explaining to me that I could buy several gallons of orange juice for that cost. Using situations like these to teach your child lessons about money are a great way to start and maintain discussions about spending.
What about allowances? Are they useful in teaching kids about money?
Absolutely. Giving your child a weekly allowance in exchange for completing chores around the house teaches her the lesson of working for her money. Some children may be eager to spend their allowance right away on frivolous items. However, teaching your child to save a portion of their allowance for a longer-term goal, such as a Playstation game or an iPod, is key to illustrating the importance of saving for long-term goals. This will also lay the groundwork for when they become adults and need to save for financial goals such as a home or retirement. For older kids, you can start your own family 401(k) plan, whereby you match a portion of their savings. For example, you could give them 50 cents for every dollar they save to help them meet their savings goal faster.
Should you talk about household finances with your kids?
Most kids model their financial behavior off their parents. Therefore, how you deal with the household finances will most likely impact how your children will handle money when they become adults. That said, I think it is wise to introduce your older kids to at least the component of the household finances that relates directly to them. This could be a good exercise for Carmen’s 15-year-old.
A relatable example for this age category is a cell phone. I am so amazed at the number of kids who have no idea how much their phones are eating away at the household budget. In fact, a recent study revealed that the average American teenager sent 3,146 texts during a three-month study in 2009. That amounts to a whopping 10 texts per hour. Whoever pays the bill knows that these texts are far from free, but often times, kids don’t know. It is important to let them know how much their texting and phone calls are costing the household.
Another important skill Carmen can teach her daughters is how to balance a checkbook. This ability is essential to managing a budget, and yet most kids are not introduced to this exercise at all. So, before they leave the nest, make sure your kids know that is critical to spend only what you have and to always know what is in the bank.
Can all this talk about money make kids anxious?
Typically, it is the parents, not the kids, who are anxious about money conversations. Ironically, surveys reveal that parents would rather talk to their kids about sex or drugs than financial concepts. But nearly one-third of kids are worried that their families may not have enough money, so having these conversations could actually ease concerns, especially in light of the recent economic crisis. Now, more than ever, is a great time to talk to your older children about what is happening in a way that they understand. And, if the household has been impacted by the recession through a parent being out of work or the house bringing in less money, talking about it openly can help diminish any anxiety that your children may be feeling.
For example, if you need to cut back on expenses, address it with your child in a candid, yet reassuring way. Let them know how the household is being impacted, and talk to them about ways the family can cut down on expenses together, like eating at home rather than going out and ordering a movie through pay-per-view rather than heading to the theater.
Teaching kids at home how to be more money savvy is definitely important, but are they learning any of this at school?
The Department of Education and the Treasury Department have put together the National Financial Capability Challenge. The purpose of this program is to help young people receive financial education to give them the tools to be fiscally responsible adults. The program is open to high schools, and participation by the school is completely free.
Here’s how it will work: During February and March, students are taught the basics of personal finance. Then, in late March or early April, students will take a voluntary exam to test their knowledge. Top scoring students will receive certificates, and schools and states with high participation rates will receive special distinction.
I am very excited about this program. I think it will go a long way in introducing financial literacy to American teens. At last count, more than 6,000 schools have signed up for the challenge. If you’re an educator interested in this challenge, you can go to the Web site, http://www.challenge.treas.gov, to get more information about the program.
