Age Old Goals

I've advocated the idea that saving for a short-term goal is a good way to teach young kids about the value of money. So, for example, during the Money Mammals Challenge, my daughter saved her weekly allowance over a month to buy a new shirt (she's now five and needs some new clothes). My wife and I both saved for tangible things as well so that she could see that we were engaged in the Challenge as a family. As I've noted in this blog, I've used this approach of short-term savings goals numerous times in order to teach the concept of saving. My wife - who is much more financially savvy than me - asked me if it's such a good idea to associate saving so directly with spending, albeit delayed gratification spending. I told her that I thought it was, but I figured another source could more effectively make my case. So I turned to a classic. I read a nice piece in a terrific book I picked up from Amazon from 1969, The Time-Life Book of Family Finance. This 40-year-old tome makes a terrific case for the need to be practical in our approach to teaching kids to save:

"One idea about money that nearly all parent try to inculcate in very young children is the importance of saving. The effort is frequently wasted, perhaps because so many people go about it in the wrong way. Too often saving is not presented in its true light, as a practical method of satisfying needs and desires, but as a vague ideal, a Good Thing symbolized by the ubiquitous piggy bank...Saving can be either a negative action - a self-denial - or a positive action leading to some desired goal. For most of us, saving must be positive: The desire for some future good has to be stronger than that for an immediate satisfaction...the reward must always be attainable and attractive. If it is not, we will not save, and neither will Junior.
Against this backdrop, let's try to imagine what goes in Junior's mind vis-a-vis his piggy bank. [When he receives pennies] he is instructed to "put them in Piggy." This is accompanied by smiles and a general air of "we're doing a good thing." It seems to be a game that adults enjoy playing, possibly because of the interesting noise the pennies make when Piggy is shaken. It is also an interesting kind of magic, because the pennies do a disappearing act. You never see them again. In fact, Junior is admonished that you never take money out of Piggy. That money is being saved.
It is not clear what Junior is learning from all this, unless what the parents have in mind is training him to be a miser. It certainly is not teaching him that a deferred use of money can be more satisfying than a present one..."

The article also makes a great case for using clear or translucent savings jars or banks.

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