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How to Raise Money-Smart Kids
By Katie Sweeney
Carrie Coghill admits she used to spend too much money on
her 10-year-old daughter. Like many single working moms, she
felt guilty that she couldn't spend more time with her. So
saying no at the mall was tough.
But last year, she realized that her free spending carried
a high price. Although her daughter was rich in clothes and
toys, Coghill noticed she was poor in money skills.
"She thinks money grows on trees," Coghill says. "She has
the expectation that she gets whatever she wants."
Coghill, senior vice president of D.B. Root & Co., a financial
advisory firm in Pittsburgh, began talking dollars and cents
with her daughter. And she set new rules. Her daughter now
gets an allowance in exchange for doing household chores.
She wants a toy? She can have it--if she forks over her own
cash.
"It's funny how kids don't want as much once they have to
pay for it," Coghill says.
She hopes her new strategy will teach her child financial
responsibility and fiscal savvy that many kids never learn.
"There's nobody teaching this in the schools, at least not
uniformly," says Paul Richard, executive vice president of
the National Center for Financial Education in San Diego.
"And children have become the biggest and most sought-after
market (for advertisers)."
So how can you raise a money-smart kid in a spendthrift
world? Not an easy task, but consider these steps:
- Give allowances: Kids can't learn how to manage
money if they don't have any. Neale S. Godfrey, author of
The Ultimate Kids' Money Book (Simon & Schuster,
1998), suggests starting an allowance at age 3. "That's
when they start saying, 'I want, I want,'" Godfrey says.
What's appropriate? There's no set rule, but it should be
enough so kids can practice budgeting. Godfrey suggests
paying kids the same amount as their age. A 3-year-old,
therefore, would receive $3 a week.
Here's where the budgeting comes in: the child must divide
his or her allowance into four jars. 10% goes to charity,
and the rest is divided in thirds: "instant gratification"
money, medium-term savings (for a toy, bike, etc.) and long-term
savings (college funds).
Experts are divided over whether to pay kids for chores.
Godfrey's solution is to create two job categories. Kids
don't get paid for "citizen" chores, like making their beds,
but they do get paid for dusting and vacuuming.
- Talk about money: "Don't be afraid to discuss
the family budget, especially when Junior is begging for
a toy at the store," says Nancy Nauser, president of
Consumer Credit Counseling Service of Greater Kansas City
and Mid-Missouri.
Planning a family trip? "Set a budget and involve the
kids in reaching the target. And don't overlook the money
lessons to be learned at the grocery store," Nauser
says. Kids can clip coupons, help compare prices, and learn
to consumer shop.
- Introduce them to investing: It's great to help
your children open a savings account, but you should teach
them about investing, too. One way is to open a mutual fund
in their name and encourage them to invest a portion of
their allowance. Some companies, such as Stein Roe, offer
funds specifically for children and have prepared material
in kid-friendly language.
- Don't bail kids out: When Nauser's 11-year-old
son buys something that he doesn't use, she doesn't berate
him, but she asks what he'd do differently the next time.
"Let them make mistakes," Nauser says. "The consequences
aren't going to be as severe as if they bought a car, and
it broke down when they still owed money on it. Those are
expensive lessons. Let them learn with smaller things."
- Look in the mirror: "Kids do what they see,"
Coghill says. To set a better example, she curbed her own
spending and stopped using credit cards in front of her
daughter, even though she pays the balance each month.
Her daughter's getting the message. "Now she's the one saying,
'Mom, why are you buying that?'" Coghill laughs. "I've improved."
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