Research reveals that we do remarkably little to teach our children about personal finance. How does a credit card work? What's the difference between a credit card and a debit card? How much comes out of a paycheck for taxes? How do you create and manage a personal budget so that you can save for the future? What's a credit report? In so many ways, we teach our children the importance of buying and having lots of stuff ( and having it now!) but little else.
Talk to your kids openly about how money works. Talk to them about the reality of earning a living and paying for the necessities. Explain how a credit card works and the importance of having a good credit record. Talk to them about establishing the habit of savings. We know it's hard to talk aboout money, but the simple act of having some dinner conversations with your children on the topic will open up many doors for them and help them establish a sense of control over their lives.
Begin teaching your child about personal finance at a young age and continue to reinforce these skills. See the National Jump$tart Clearinghouse for more ideas for teaching your child about personal finance.
ABA Educational Foundation (http://www.aba.com/aba/documents/press/abaef/ParentWorkbook.pdf)
Children Learn from You. Children learn a lot from their parents. Be an example of a responsible money manager by paying bills on time, being a conscious spender and an active saver. Look for opportunities to talk about money, read aloud books and play games that center around spending money wisely.
Needs or Wants? Family shopping trips are good opportunities to discuss budgeting, spending and saving. It's easy to give clear examples of "needs" and wants," using different kinds of foods at a grocery store: Milk (for strong bones) is a need; soft drinks are a want.
Divide and Conquer. Have children begin budgeting by dividing their allowance or any money they receive into four clear jars labeled: Sharing, Spending, Short-term Saving and Long-term Saving. They should deposit 10 percent of their money or $1 for every $10 in the sharing jar, 30 percent, or $3 for every $10 into the spending jar, another 30 percent, or $3 for every $10 into the short-term saving jar and the last 30 percent or $3 for every $10 into the long-term saving jar.
Bank on Knowledge. Bring your children to the bank and show them how transactions work. Get the manager to explain how the bank operates, how money generates interest and how an ATM works. Ask the manager for a tour -- be sure to ask to see the vault!
Pay by the Chore. Make a list of all the chores that need to get done around the house, such as weeding the garden, washing the car, sweeping the garage, or dusting the living room. Put a dollar amount next to each chore. Children can then pick and choose which chores (based on how much money they need this week or month) they want to do. This gives your children the freedom to choose their extra-credit chores, the freedom to make some extra cash when needed and encourages them to take pride in their work.
Budget, Budget, Budget. Have older teens list expenses and income. Under expenses, include what they spend for movies, bus tokens, lunches, etc. Have them subtract expenses from income. Help them think of ways to reduce their spending. If their income is more than expenses, talk about a savings plan.
Planning a Budget. Tell your child or children to pretend that they are in charge of planning a birthday party at home for another child. Four of her friends will be at the party. Estimate the total cost. Suppose the party is lunch at a local restaurant. Estimate the total cost. Suppose the party is a trip to a local amusement park or bowling alley. Estimate the total cost.
Back-to-School Saving. When it’s time to go back-to-school shopping, discuss alternative or less expensive items than what is listed on their school supply list with your children. Then compare how much they’ll save. Discuss with them ways to save money throughout the year by packing a lunch, using all pages in notebooks and using book covers.
ABA Educational Foundation (http://www.aba.com/ABAEF/TCTS/Pages/BeginnerBudget.aspx)
The best way to reach your saving goal is to start with a budget. A budget helps you keep track of the money you have coming in – your allowance or Birthday money – and the money you have going out, including spending, saving and possibly donating. A good way to learn budgeting is to divide your money into four clear jars labeled: Sharing, Spending, Short-term Saving and Long-term Saving. The following guidelines will help you decide how much to put in each jar.
1. Sharing jar: deposit 10 percent of your income, or $1 for every $10. Are you concerned about helping children or animals, protecting the environment or supporting a local food bank? Choose a cause that you're interested in and donate regularly. You'll feel good and the charity will benefit from your generosity!
2. Spending jar: deposit 30 percent of your income, or $3 for every $10.This money can be used at any time for small purchases, like a baseball or a CD. Ask your parents for guidelines on how you can spend this money, and then make your own decisions!
3. Short-term Saving: deposit 30 percent of your income, or $3 for every $10. You may need to save several months for larger purchases, such as a video game or an IPod. This jar will help you save for some cool stuff!
4. Long-term Saving: deposit 30 percent of your income, or $3 for every $10. This is where you'll save for the future. Someday you'll want to go to college or buy a car. These expenses require a lot of planning and saving!
Once your money has started to add up, ask a parent or trusted adult to help you open a savings account at a bank. The bank will make sure that your money is safe, and they'll even pay you while it's there. Your local banker can help you open an account and learn more about other ways to save.
[Also see the Money Talk newsletter for kids]
Abstracted from the article by Melora C. Heavey, Senior Manager, Communications and Consumer Education, AICPA appearing in the Jump$tart Update, Winter 2012, Volume 17, Issue 1
According to a recently released survey by the American Institute of CPAs (AICPA), the vast majority of parents require their children to earn an allowance. Eighty-nine percent expect their children to put in 6.2 hours per week on chores.
SET PARAMETERS. If you decide to pay an allowance, make sure your children clearly understand why they are getting it, how they earn it, and how they lose it. Some families, for example, condition allowance on the completion of specific chores and make deductions for those that aren’t finished. Others set a base allowance and provide bonus opportunities for extra chores that are completed. No matter what you approach, make sure that you align payment with action so your kids understand that money must be earned.
SET GOALS. An allowance is a great gateway to budgeting. Rather than giving your children money to spend at will, consider an allocation process that rewards a focus on short-term and long-term thinking. You could, for instance, allow your child to set aside 25 percent for short-term goals like a game or new toy and 25 percent for immediate or impulse decisions, like outings with friends. You could then require that the remaining 50 percent be set aside for long-term goals like college and you could reinforce this idea of saving by matching those dollars.
TALK OFTEN. No matter which approach you take with an allowance, it is vitally important to engage your children in discussions about money management. The more they are exposed, the more likely they will be to make good money management a part of their daily life as they grow older
Money as You Grow, developed by the President's Advisory Council on Financial Capability, provides 20 essential, age-appropriate financial lessons—with corresponding activities—that kids need to know as they grow. Written in down-to-earth language for children and their families, Money as You Grow will help equip kids with the knowledge they need to live fiscally fit lives. The lessons in Money as You Grow are based on more than a year of research, and drawn from dozens of standards, curricula, and academic studies.
The President's Advisory Council on Financial Capability (PACFC) was created by Executive Order 13530, which was signed by President Barack Obama on January 29, 2010. Its charter is to advise the President on promoting and enhancing financial literacy and capability among the American people. One of its key objectives is to find ways to improve the financial capability of young Americans.
The purpose of this website is to inspire families, community organizations, nonprofits, and businesses to embrace Money as You Grow as a tool to promote financial literacy. This website serves as a guide to learning about and using Money as You Grow.