teaching kids about money

How to Raise Your Kids to Be Financially Independent

Keith Whelan — Fri, 09 Aug 2013 09:48:30 +0000

A recent Pew Research study confirms what most of us already know — a growing number of adult children are either delaying their departure from home or are moving back after a false start.

In all fairness to this generation of young adults, they just happened to enter adulthood during a deep, prolonged recession. To make matters worse, this recession has also been accompanied by a fundamental restructuring of our economy; so unfortunately things don't look much better for the generation that follows, either. (See also: 7 Important Lessons Frugal Parents Teach Their Children)

That's something the children can't control. But what can be controlled is how well prepared they are to deal with it. And their success or failure on that score will impact not only their own financial future, but also yours — for the longer your children remain financially dependent on you, the more it can delay or even jeopardize your retirement.

So, what can you as a parent do to reduce the "boomerang" risk and ensure your kids are financially independent?

Set Expectations: Share the Bigger Goal

When raising our two boys we established and tried to achieve three broad goals. We communicated these goals to them early and often. The hope was that if they had a clear understanding of what was expected of them it would help to anchor them and give them focus.

We summarized our goals as "IRC":

Independent (learn to live independently)
Responsible (take responsibility and be accountable for your actions)
Caring (care for and respect others…and yourself)

An important part of achieving the first goal — of becoming Independent — meant learning how to manage their own finances. For help with this we were fortunate to receive some well-timed advice. At our oldest son's first birthday party a couple we knew mentioned that they set up a savings account for each of their children just before they were born. The couple deposited into the accounts every dollar the kids received on birthdays, holidays, and special occasions.

Start Early With Savings

Because the couple started so early, over the years their savings grew to a tidy sum. This was our first lesson, and it got the ball rolling for us.

So we immediately opened a savings account for our firstborn. Not just any account, a passbook savings account. Why? Because, unlike a statement savings account, withdrawing money from a passbook account is inconvenient; it requires actually going to the bank — and during banker's hours no less. But inconvenient is what we wanted, for if making withdrawals was as simple as using an ATM card or clicking a mouse, then it would have been much easier to yield to the temptation of taking out some money "just this one time."

Make It a Team Effort

Soon our oldest son was joined by a younger brother and before we knew it, they were both in middle school. It was then that we introduced them to their savings accounts and encouraged them to take a more active role in the activity. Whenever money came their way, they accompanied us to the bank. With each deposit came a sense of accomplishment, knowing that they were contributing to a steadily growing savings amount.

Also, as an incentive to start adding their own money to the gifts they received from others we contributed a dollar-for-dollar match to each child's own deposit, much like a 401(k) program.

Add Investments to the Mix

Not too long afterwards, we introduced an investment component to the mix. Each child (actually, they were young adults now) could allocate a portion of their savings to one or two stocks. In keeping with the "teamwork" philosophy, stock selections were jointly made by the whole family.

Adding stocks made things a lot more interesting and also increased their engagement considerably, because it introduced the element of risk. Up until then, there was only one way their savings balance could go — up. Now it could go down, but it could also rise faster than if it were pegged to the bank's low fixed interest rate on the savings component.

Some stock prices did fall, so as these lessons were learned and as they began to understand more about how the stock market worked, we allowed them to make a small number of additional trades. (And to be fair, my wife and I secretly agreed to make them whole if by the time they graduated college their stock picks didn't at least break even.)

Monitor Progress With Financial Statements

By the time the boys were in high school they were fully engaged in this effort. Capitalists that they are, they even started making fairly sizable deposits into the account from after-school job earnings.

As "portfolio manager" I created and distributed quarterly account summaries. These summaries helped them monitor their progress and also prepared them for reading and understanding the financial statements they would later receive and use after leaving the nest.

The End Game: Setting a Final Goal

As high school graduation approached, each account had grown to over $15,000. That was considerably more than any of us had expected. With both boys planning to attend four-year college, we decided that the accounts would be turned over to them after earning their undergraduate degrees. This gave us an opportunity for a final shared activity — goal setting.

The logical place to apply the money was on college debt. Average student loan debt for college graduates who borrow is now nearly $30,000, so repaying all or a healthy chunk of it creates an opportunity to begin adulthood in a strong financial position. In our children's case, college was (and continues to be) paid for by dear old Mom and Dad. So they have an even better chance at not only being debt-free when entering the working world, but actually having a considerable amount of savings to help them get — and hopefully stay — ahead.

Lessons Learned

When we opened the first savings account around 20 years ago, we didn't know what it would lead to. The activity evolved and changed over time and, for us, it ultimately created an opportunity to accomplish many things.

It introduced our children to the concept of saving and the positive effects of compound interest over an extended period of time.
It introduced them to stock market investing, risk, and the learnings that come with failure.
It gave our children a hands-on opportunity to set and achieve financial goals.
It evolved into a process involving engagement, family teamwork, and collaboration.

And it did one other thing — it gave our children an opportunity to get ahead early in the game.

Hopefully the experience will nudge the odds in favor of reducing their financial dependence on us as they enter this brave new world. Perhaps this approach can be used in some fashion by your family or by others close to you to help their children get ahead, too.

Are you teaching your children how to be financially independent? What does your lesson plan look like?

This article is from Keith Whelan of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

The Best Money Tools and Toys for Every Age Group

Linsey Knerl — Thu, 29 Sep 2011 10:24:19 +0000

It was almost four years ago that I initially researched the world of financial teaching tools for kids. At the time, I thought that many of the top-notch products on the market aimed at introducing children to money would be a great holiday gift. Now I realize that it’s never too early to pick up a reputable toy, tool, or application that can instill important money values into your child’s education. Here are some of the top picks I’ve identified, broken down by age group. (See also: This Season, Give Your Child the Gift of Fiscal Responsibility

Birth to Age 3

While they really can’t absorb many financial principles at this age, there are things they can learn about money. For starters, money doesn’t go in the mouth. They can also start to grasp a basic familiarity with cash by playing with toy piggy banks, complete with play money appropriate for their age group. (Look for toys that won’t become a choking hazard; they should be clearly marked for kids under 3.) The Fisher-Price Laugh n’ Learn Bank has been around for years, and it is one of the only banks on the market that’s approved for children as young as 6 months.

Ages 3–5

Preschool is an exciting time for kids! We like to get things rolling with a hands-on lesson in coinage and the appropriate names and values for each. In addition, we have found that DVDs are a major boost to the “wow” factor when teaching money. Our favorite is currently Munchkin Math: Counting Money, which has the kids singing the values of money and playing little games between activities. This is also the perfect age to teach basic business foundations by encouraging your little one to play “store.” There are dozens of amazing products on the market, but our favorites for durability and “kid appeal” come from Melissa and Doug. They offer some of the most innovative food and grocery sets around, and their play money seems to last forever!

Ages 6–8

For those who have grasped the basics and are now on to spending money and basic change-making skills, I find that the Rock N’ Learn: Money & Making Change DVD is great for kids with a short attention span. (Parents be warned, however; the songs are loud and you may not be able to tolerate it for very long.) My wiggly boys seem to absorb quite a bit via the Rock N’ Learn DVDs, and the recommended age for this DVD is spot on. You will also want to include them in basic shopping tasks at this age, which can include having them clip coupons, count out money at the register when checking out, or picking out the lowest price product at the store. (We always have the kids pick the cheapest “pink” milk from the grocer’s fridge.)

Ages 8–12

From age 8 on, I highly suggest that adults employ some kind of allowance system. The benefits for making kids work for their allowance are many, but even if you just hand them a couple of bucks a week for nothing, there can be a lesson made of the experience. There are many resources available to help kids track their earning, spending, and saving, and many of those I mentioned in my previous article are still around and awesome (including the Moon Jar and Money Savvy Pig.) Whatever you choose, however, try to avoid any banks or products that count the money for the kids. While it is neat to hear a robotic bank count out pennies, it defeats the purpose of having kids manage their own cash.

The Teen Years

Learning shouldn’t stop now, especially since kids will be exercising new freedoms with their money. For a fun way to reinforce basic economic facts in a way that football fans will enjoy, I think the Financial Football Game from Visa will help to engage bored students and break the monotony of textbooks. When you’re ready for a real-life application of using a budget, nothing compares to the concept behind Bill My Parents and their prepaid card for teens. Unlike other cards, which parents tend to load and forget, the BMP card provides updates to parents on every purchase made via text notifications and provides the control parents need to help get kids talking about where their money went.

College and Beyond

Parents, I’m pleading with you — PLEASE don’t forget about your college-aged kid just because they no longer live with you. They are going to make some of their most harmful mistakes while in their late teens/early twenties, and even with the new age limit for consumer debt accounts, there will be a need for preparation and practice. If you send care packages, now would be a great time to include a few choice issues of some of the better financial magazines on the market. If you find the hardcore economics reads to be too dry, an Inc. or Fast Company subscription will at least get their entrepreneurial juices flowing.

Are you incorporating an understanding of financial skills into your child’s daily life? Even with the classes offered in today’s schools, there are never enough “official” lessons being given to our youth. Take the lead as a parent, uncle, or friend, and see what the child in your life knows about money. The answer may surprise you, and the outcome to teaching them what they should know can only make our world a better place.

This article is from Linsey Knerl of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

7 Important Lessons Frugal Parents Teach Their Children

Annie Mueller — Wed, 22 Jun 2011 10:24:11 +0000

I have pretty strong and unswervable opinions about how I want to raise my kids; a key item being that I don't want to spoil them. But sometimes the Mom-guilt creeps up on me, especially when I compare myself to how a lot of people around me are raising their kids. Am I depriving mine by not giving them lavish birthday parties, name-brand wardrobes, frequent kid-centered vacations, lots of meals out, and brand-new toys?

There's nothing wrong with that stuff, but when I stop and think about it all, I realize what I am giving them by being a frugal parent. (See also: Five "Jobs" for Children)

1. The Gift of Creativity

Every kid is creative, we know that. But sometimes we can actually hinder that creativity by throwing so many ready-made toys at our kids that they don't have to imagine anything for themselves. There's nothing more amazing than the power of a child's imagination, and when I watch my kids construct forts and fairylands out of boxes and blankets, or invent games that entertain them for hours and involve no toys at all, I'm in awe.

2. An Understanding of How Money Works in the Real World

You might not have noticed this yet, but...in the real world, you don't get everything you want. Stuff isn't free (usually). You have to work for your money, and when you spend it, it's gone. Far better for kids to learn this one lesson and day at a time than to grow up with deep delusions about their own entitlement.

3. An Appreciation of the Simple Things

A couple of week ago, my husband and I decided to take our four young kids out for a special treat — dinner and a movie. We told them the kids to hop in the car for a surprise, and for the ten minutes we were in the car, they were nearly bouncing out of their seats in anticipation. Their top guess? That we were going for a walk. A walk.

And they were thrilled at the thought.

Lest you think our kids never get to do anything more fun than walking, let me clarify that we regularly do fun stuff as a family. And we spend money on our kids. But our most frequent choice of family fun is simple stuff: playing at the park, going for walks, hiking through the woods, or playing with the sprinkler in the yard. And as a result, our kids value these very simple (and very frugal) activities as highlights.

They were also really excited when we told them we were going out to eat and then to a movie...though our 3-year-old did ask, as we left the theater, if we could go on a walk now.

4. The Habit of a Less-Wasteful Life

When you live frugally, or at least attempt it, you tend to buy less and throw away less. You want to get value out of what you purchase, so you become more aware of quality (will this last, or will it break?) and true need (is this a need or a desire?). You also become more adept at repurposing and reusing items instead of just tossing them out. The benefits? You save money, live a greener life, and help your kids learn to do the same.

It can be kind of a drawback at times; a few days ago my oldest daughter caught me in the middle of a closet purge. She started picking through the trash bag beside me, pulling out items I just wanted to get out of the house and berating me (gently) — "Mom, we can use this for something else!"

5. A Vision for Work as a Normal Part of Life

I love working. Don't get me wrong — I also love long, lazy weekends; sleeping in; and vacations. But work is good, a blessing and not a curse, and I want my kids to anticipate work, not dread it. Work is both the ability to turn time into money and the ability to create value through what you produce. Work can be earning a paycheck or tending a garden, and both types of work give you a return on your labor. Part of our frugal lifestyle is buying less and producing more for ourselves through our own work rather than through dependence on someone else's work. It's something we'll teach and include our kids in more as they get older.

6. The Ability to Solve Problems

Money can't buy everything, including love and happiness, but money can buy a lot of solutions to common problems. When you have enough money to spare, it becomes so easy to just fix your problems by throwing money at them. Limited funds, on the other hand, mean that you have to force yourself to think through other ways to solve your problems. Car breaks down? Fix it yourself or barter with a mechanic friend. No money for a lavish birthday gift? Make something special and unique instead. I want my kids to learn to think through their problems and come up with their own solutions, and being frugal is helping us to teach them how.

7. A Financially Independent Future

Of course, there's no guarantee that just because we live a frugal lifestyle our kids will be financial experts. But I think they have a better chance of becoming financially independent adults as we teach them the financial principles we're learning. We're communicating, through our lifestyle and the daily decisions we make, concepts like how important it is to stay out of debt, how it's better to pay cash for purchases, how credit can leave you in a hole, how the quality of what you purchase matters, how your own ability to work and save is powerful, and how you choose what you do with every dollar you have. I just hope they're paying attention.

Being frugal doesn't make me a super mom. I make plenty of mistakes everyday, but I do think that being frugal — even when I don't want to be — is helping me to raise my kids to be more self-sufficient, savvy with their money, creative, and open to adventures. I also value that being frugal has opened our life up to the generosity of other people. We've not only learned how to receive, we've also learned that we all have something to give. That's a lesson I want my kids to have for life.

This article is from Annie Mueller of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Teaching Preschoolers About Money: An Interview With Beth Kobliner

Sarah Winfrey — Fri, 03 Jun 2011 09:48:16 +0000

A while back, I got to interview Dr. Brad Klontz about H&R Block’s new Dollars & Sense program for teaching kids about money. While not everyone agreed with him, most readers did agree that we need to be doing something, whether it’s through the schools or at home, to educate our children about smart money practices. (See also: 6 Random Things I Have Taught My Kids About Money)

Beth Kobliner, author of “Get a Financial Life” and a member of the President’s Advisory Council on Financial Capability, is taking another tactic. She’s the brains behind Sesame Street’s latest efforts to help parents teach even their very young children basic financial principles. I got a chance to talk to her about the importance of financial education, how to start early, and what it was like working with Elmo.

Sarah Winfrey: Why did you feel the need to create a video like this, highlighting personal finance for young children?

Beth Kobliner: Financial education is so important right now! Americans are still reeling from the recession. Most adults are baffled by personal finance. And new research shows that even preschoolers can learn about money. So Sesame Street, in partnership with PNC, worked with experts in the field like me to find a way to help families. The final product, "For Me, for You, for Later: First Steps to Spending, Sharing, and Saving," includes videos, guidebooks for parents, and activities for kids — all for free.

Where do you think most parents struggle the most with teaching their kids about money?

I think the biggest roadblock is fear. Parents think: "How can I teach my own kids if I don't know it myself?" But you don't have to teach your 3-year-old about derivatives! You don't even have to be good at math. Sesame Street's initiative isn't about four-quarters-equal-a-dollar, it's about how you spend, share, and save that dollar.

What is the most important lesson parents can teach their young kids about money?

Two words — delayed gratification. The best way to explain it to children is to tell them that sometimes you have to wait. Remind them that you wait for the swings, you wait for your turn in line, you wait for your birthday…and sometimes, when you really want something, you have to save up until you can buy it.

What is reasonable to expect young children to learn about money? How much can parents effectively teach them at this age?

Kids as young as 3–5 years old can learn so much! Parents should look for everyday teachable moments. Going grocery shopping? Explain needs (half a dozen apples for $4) versus wants (a bag of cookies for the same price). Having a playdate? Encourage your child to share his shovel in the sandbox, and you’re planting the seeds of charitable giving. On the way home? Tell your child that you're going to a gas station a few blocks away because it has a better price.

How did using Sesame Street characters add to the personal finance lesson you're teaching?

Sesame Street characters like Elmo and Cookie Monster add so much levity, joy, and value to this project. After all, who better than Sesame Street, trusted by millions of kids and adults worldwide, to teach young kids and put parents at ease — especially for a topic like this, which many find overwhelming.

And last but not least, what was it like working with Elmo?

I know it’s a cliché, but it really was a dream come true!

Watch Beth’s video, "For Me, For You, For Later." Watch it with your kids, and see what they get out of it. Then, try out some of these discussion questions:

Why does Elmo like the Stupendous Ball?
Why does Elmo try to get more money after he sees Stupendous Ball?
What are you saving your money for right now, or what would you like to save for?
What do you save your money in (piggy bank, jar, etc.), or what do you want to save your money in?
Why doesn’t Elmo buy ice cream after the machine is fixed?
Why is Cookie Monster sad?
Why does Elmo give Cookie Monster $1?
If you were Elmo, would you give Cookie Monster $1?
Why does Elmo choose to buy the Fantastic Ball instead of the Stupendous Ball?

This article is from Sarah Winfrey of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Teaching Kids About Money: An Interview with Dr. Brad Klontz

Sarah Winfrey — Thu, 24 Mar 2011 10:00:08 +0000

It’s commonly accepted that many high school graduates do not have enough education in the area of personal finance. In fact, personal finance classes are not even required for graduation by most high schools. So is it a surprise that when they get out into the world, they are susceptible to getting into credit card debt, neglecting retirement savings, and struggling financially? (See also: Getting Kids Started With the Stock Market)

It seems clear that kids need more education in these areas. But schools balk at offering it, especially in this era of financial cutbacks. They simply don’t have the space in their buildings or curriculum, and they don’t have money to pay teachers to teach these new classes. Many schools admit that personal finance education is a great idea, but they say that someone is going to have to step up and fund it if it’s going to happen.

H&R Block’s Dollars & Sense program is doing just that — offering a curriculum and scholarships for schools committed to teaching teens practical lessons about money before they’re out on their own. The company has provided more than $2 million worth of curriculum and scholarships to high schools and their students worldwide since 2009.

Recently, I had the chance to interview Dr. Brad Klontz, a financial psychologist who helped develop the program, about what it offers and what kids need to know about money. Even if your kids don’t get to participate in a program like H&R Block’s, he has some practical tips for teaching them about personal finance.

Sarah Winfrey: What will students learn in the H&R Block Dollars & Sense curriculum?

Dr. Brad Klontz: H&R Block Dollars & Sense uses Virtual Business® — Personal Finance, a curriculum developed by Knowledge Matters. Students are assigned an avatar and get to make real-world decisions in a simulation environment without the real-world consequences. The skills students learn include: budgeting and saving, choosing and balancing a checking account, getting a credit card and understanding credit, online banking, paying taxes, investing for retirement, time management, finding a job and housing, buying a car, making smart purchases, understanding insurance, and much more.

It sounds like the program focuses on “hands on” learning scenarios. How do these help students learn about money, as opposed to memorizing information on types of investments, etc.?

The simulation software is very hands on, allowing students to learn and practice key personal finance skills in an engaging, interactive environment. The curriculum combines rich visuals and animations to put these important skills into practice — they learn that if they don’t purchase food, they’ll starve; or if they spend all their money on a big-screen TV, they can’t pay rent. They can’t “undo” those choices within the lessons.

Sounds quite practical. Of all the financial lessons out there, what do you think is the number one thing that graduating high school seniors need to know about personal finance or finance in general?

It is critical for teenagers to understand the ins and outs of credit and credit cards. We require students to pass Driver’s Education before issuing them a license to drive a car; however, they can wield a credit card with no training or instruction whatsoever. Shortly after they leave home, teenagers will be offered credit cards. Without an awareness of how credit and credit cards work, they will be set up for failure.

What sort of tactics do you recommend for helping students understand using credit cards or taking on debt?

Nothing works better than direct experience. In addition to talking to teens about how to use credit wisely, parents should give their teenagers the experience of paying interest.

For example, consider advancing their allowance if they ask, but charge them interest. Currently, the average credit card interest rate for someone with bad credit approximates 25%. Since teenagers don’t have a credit history, they would be considered a higher credit risk, so 25% interest is about right. You could advance them their $20 allowance on Friday, and then take $5 out of next week’s allowance. If they take you up on your offer, the instructional moment will arrive the following week when you give them $15 instead of $20. Talk to them about how this experience is similar to carrying a balance on credit cards, where you sacrifice having more money in the future for being unable to delay immediate gratification.

Have you found any personal finance topics appeal to teenagers the most? How does the program incorporate these into what it offers?

Teenagers get very excited about the idea of compound interest. When they see how saving just $100 per month invested at 12% interest would give them over $3 million dollars by the time they are 60, it blows their minds. If all teenagers learned and practiced this very simple lesson, we would have a nation of millionaires within a generation. The simulation experiences H&R Block Dollars & Sense provides gives students the opportunity to experience compound interest versus just hearing about it.

What advice would you have for parents looking to supplement the financial education their child receives (or doesn’t receive) in school?

Because money management is often a difficult discussion for parents and teens to have, here are a few tactics parents can implement when helping their teens become smarter about money management:

Hold off on giving them advice and just listen. Or ask questions to help start the conversation, such as:
- How do you think people get wealthy?
- What are your financial goals?
- What do you worry about regarding money?
Allow your kids to experiment, make mistakes and learn from them. For example, give them an allowance, but don’t bail them out if they run out of money. This lesson provides an opportunity to examine financial missteps objectively and come up with strategies to do it differently next time.
Encourage them to think before making a purchase and to wait a day or a week before buying it. If they still want it, it’s a good opportunity to talk about a spending plan.
Model healthy financial behaviors your teen can follow. Kids learn more by what they see their parents do than what they say. For example, it’s a good idea to decide on something you want to purchase as a family. Then involve them in the budgeting and saving for it.

[End of Interview]

As Dr. Klontz suggested, there’s so much that parents can do to help their kids learn about personal finance, and these ideas are just the beginning. If you’re interested in getting personal finance curriculum into your child’s school, talk to some administrators and see if they’re willing to apply for some of H&R Block’s scholarships.

Right now, some schools have already submitted their applications to be part of this program. Until April 15, you can go online at H&R Block’s Dollars & Sense website to view these applications and vote for the school or schools that you think most deserve the chance to teach this curriculum. The winners will receive their grants by the end of the current school year. It doesn’t take long to vote, and your time goes towards helping high schoolers learn valuable financial skills.

This article is from Sarah Winfrey of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: