Take Advantage of Opportunities to Teach Your Kids about Money

One of the biggest benefits of beginning money talk with your kids when they are young is that there seem to be endless teaching opportunities or "teaching moments" afforded to us by them. Kids love to ask questions and providing them answers to such things as...

• "Why can't we go out to dinner again tonight?" (discuss the family budget or the cost of doing so)
• "I really want that American Girl doll. Can you buy it for me?" (talk setting goals and saving)
• "Why do I have to put money in my Share jar?" (it's time donate those dollars - make it tangible for them)

...will help them feel more comfortable with money and money choices. Money is a tool with which kids should be comfortable. Talking to them about it will keep it from becoming a "taboo topic."

By not talking to your kids about money, you'll miss the chance to engage with them in these ultra-important teaching moments. It will increase the chance that money will move into the realm of "taboo topic" and that can lead to misunderstandings and, worse, financial illiteracy when they get older. Talking to them about money doesn't guarantee money smarts, but not doing so carries tremendous risk.

Are you worried they might not understand? You'd be amazed what they can understand at a young age. Check this out:

Choose to Save

Thrive by Five

-John

President's Council Report

"While there are many causes to the economic problems facing this country, it is undeniable that lack of financial literacy is a contributing factor."

-Charles Schwab, Chairman of the President's Advisory Council on Financial Literacy

You can click here to read the 2008 report.  

Keep in mind that although I have highlighted this very important government foray into improving financial literacy in America, I still firmly believe that parents are at the heart of the solution.  Although we should all appreciate the effort being put forth to improve youth financial literacy on the national and state levels in our schools, children will ultimately learn their most important lessons from parents who model behaviors, good and bad, for their children.

-John

Turning the Corner

I see one huge silver lining in the current economic crisis our world is facing - financial literacy is already becoming a huge, hot topic.  I've seen a marked increase in articles promoting frugality and even teaching kids about money.  Not surprisingly, it takes a massive calamity to open people's eyes up to the importance of something.  Let's hope that the sudden new emphasis on frugality can lead us to the promised land - a nation of people who save at least 10% of our disposable income.  There's never been a better time for all of us to become money mammals.

-John

The Money Mammals Challenge

Fellow Money Mammals,

April is now my favorite month. Why? Well, it's National Financial Literacy Month of course. It's a great opportunity to spread the word about youth financial literacy. I'll be doing a live Money Mammals event in Eureka, California, later this week sponsored by the Consumer Credit Counseling Services up there. Then I'll be heading to DC to for Financial Literacy Day on Capitol Hill with the Jump$tart Coalition for Personal Financial Literacy to help spread the good word.

But I wanted to do more. I thought long and hard about how to make this month more relevant to all of us and our kids and I think I may have come up with a compelling idea...

The Money Mammals Challenge. And we want you to take the challenge with us.

It's simple. You and your children each set financial goals to achieve this April 2008. Download this super-simple worksheet here and put pictures of you, your little savers and, most important, pictures of the goals you will be trying to achieve. They need to see the goals. Also, make sure you're saving money in a jar or something so that they can see your money being saved as well as theirs. As the sheet suggests, break the goal into four parts and enter those incremental amounts into the weekly rows. I've tried the goal-saving approach with some success (see my previous blog posts) and I think it can work for you.

Let us know how you're doing by adding comments to this post. The second step in the challenge will be to spread the word. More on that later.

-John

Starting An Allowance

At one of our recent super-fun live "Money Mammals" shows, a parent approached me about starting an allowance for her 5-year-old. I figured it was a good time to share the approach our family is taking as it might be helpful for others. We've just started allowance for our 4-and-a-half year old and I've begun by using David McCurrach's book, Kids' Allowances, as a guide. I like this book because it's simple, includes a survey of what parents of various age kids do r.e. allowance, cites various experts on youth financial literacy, and provides you with a structure to provide allowance for your children. The author is also experienced - he has honed his method on both his kids and grandkids. And he's not "preachy" or condescending, refreshing when you consider the approach of some financial self-help gurus today.

So what are we doing? We are using a three bank system (Share, Save, Spend Smart) and she's getting three dollars per week - two dollars and four quarters. Providing the money in different denominations provides us with a teaching opportunity each week (e.g. four quarters equals one dollar - and you can change up the coins each week). She is required to put two quarters into the "Share" jar (for donations) and two into the "Save" jar. At her age, we're making saving tangible by putting a picture of a savings goal on the bank so she knows that she's saving for something. She can do what she pleases with the other two dollars - put them in the "Spend Smart" jar or either of the other two (Save or Share). We are not tying our allowance to chores and we will revisit our approach at least every six months. At some point, we may consider some type of savings matching to encourage savings and I envision giving her complete control of her allowance (no mandates) in a few years.

I hope this is helpful and good luck to all parents out there. Remember, it's most important to just do something. You can't afford not to teach your kids about money.

Who Will Own Our Children?

Ok, I'll admit it. I stole this headline for the National Association of State Boards of Education's report on financial and investor literacy. The title says it all. If you decide not to teach your kids about money when they are young, you may be ceding their financial educational literacy to credit card companies or financial institutions who may not have your child's best interests in mind. This is certainly not to say that credit card companies and financial institutions are bad - only that I don't believe they should be the primary source of financial literacy education for our kids. Parents need to teach their kids about money. Why? Let me give you a few snippets from the report:

"In 2005, the average personal savings rate for the year dipped into negative territory [where it's remained] ...in the United States for the first time since the Great Depression as consumers relied on credit and/or tapped into personal savings and other assets to allow them to spend more than they took in. As a comparison, savings rates for countries in Western Europe hover around 14 percent." In short, we need a country-wide change in attitude towards saving money. We must teach kids the basics of financial literacy as early as possible, just as we do with teaching them their ABCs, personal hygiene and eating right (though I suppose we still need work on the latter of these). I believe that this may take a generation to do - though hopefully sooner - and that we need to start now.

"Changes in employment and public policy have only recently put substantial financial responsibility on the shoulders of individuals, a condition for which they have not been adequately prepared. Financial literacy is as much a societal concern as it is an issue for individuals..." The NASBE narturally argues that the state boards of education need to be involved directly in K-12 financial literacy. I do agree that classes in personal finance are arguably as important - if not not more important - than those in the three R's and I'm glad financial literacy requirements are in place in some states. I believe, however, that it's of paramount importance that parents take significant responsibility in the process as they will set the stage with their own behaviors as to how children will view and use money. I created a DVD, "The Money Mammals: Saving Money Is Fun," to help parents start this dialogue. If you are interested in finding out more, click on the link to the right.

Most importantly, youth financial literacy makes a difference. The NASBE report notes that "the evidence shows that youth financial education can make a difference. Individuals graduating from high schools in states the mandate personal finance education courses have higher savings rates and net worth as a percentage of earnings than those who graduate from schools in states without such a mandate. "

So before you decide to wait to talk to your kids about money, be sure to ask yourself, "Who will own YOUR children?"

John