Teach preteen children about money matters

I recently was talking to a father with a young son at Ganondagan, where I am a trail guide.

The father, who reads this column, asked me what advice I had for teaching younger kids about money. I told him there are numerous websites out there today that he could look at, and told him some of the things I have written about in the past, that I think still work today.

Several days after that, I mentioned it to a couple, who are also readers, and they reminded me of a series that I wrote on that very subject in the Italian American Community Newspaper a while ago. It turns out it was 10 years ago, so here it is (I can’t believe they remembered that, since at my age I can barely remember how to get home at night - just kidding!).

Today, there may be all kinds of fancy apps and games available to teach younger children about money, but these tips still work, and they have a personal touch.

Your children will learn many, if not most, of their attitudes and habits about money and finances from your actions, but if you want them to grow up with the ability to handle money and credit responsibly, you are going to have to do more.

It is definitely challenging in today’s world of hyper-consumerism and debt acceptance, but you need to talk with them, take advantage of and create learning experiences whenever possible, and, as my wife, Judith, suggests, even have periodic money matters family meetings.

Working backward from what I saw in and around the bankruptcy courts for 38 years, here is what I believe they need to learn at an appropriate age:

Start with the basics

1. Money is something we mostly earn from our hard work, and then use to buy goods (food, gas and clothing), and services (heat and the mechanic who fixes our car), and to do things (go to the zoo or the movies). People and families earn different amounts of money because some work pays more than other work (yes, athletes and entertainers do work), and some families have two workers. If you earn more money you can buy and do more, so people can work harder or get a better job, which sometimes requires that you move or have more education.

At some point, show them your pay stub. At some point explain that money doesn’t always buy happiness.

2. There are of course other incidental ways to get more money that children may or will see. Gifts (grandparents, allowances without chores), selling things you don’t need or want anymore (garage sales, Craig’s List, consignment stores), even playing, and only sometimes, winning the lottery.

3. Then there are the two other significant ways to get more money, but for the most part children won’t see or understand them without your guidance – returns on investments and loan proceeds.

I don’t believe that until you have taught them about saving and earning a return, like interest in their own bank account, they are ready to learn about loans or credit cards that may cost them money, because they have to pay interest.

4. Although not technically a way to get more money, saving money on the things you need by finding them at a cheaper price,(a penny saved is a penny earned), is also an important lesson on how to be able to buy and do more with your money.

I believe that the more you associate money and buying power with work and saving and investing, the more children will value money and will want to get better value for it when they spend it.

Thoughts on allowances

Although there are many different opinions about whether, when, how much, whether chores should be required, and what lessons they should be used for, allowances can be an important teaching tool. That being said, if, as a parent, you decide to go that route, be proactive, committed, engaged, and willing to do more research.

We can’t possibly cover everything, but these are my thoughts:

1. Chores required?

I believe that an allowance should be tied to chores, because, as I have said, the more money is associated with work, the more people will value it and make better decisions about it. When I talk with students about $25 late fees, I translate it into hours of work at that minimum wage job they love so much – and they get it!

However, I think there should be two sets of chores. One is just the things you do to learn to be a responsible individual and family member (make your bed), and others you get an allowance for (cut the lawn). Then there can be extraordinary chores you can get paid separately for (wash the car). It’s up to each family to develop the lists.

2. Needs vs. wants

An allowance is a great tool to start teaching children this difference, and how to make smart choices. You are responsible for their needs in life, but if you think that includes new snow skis every year, the best camps and nothing but brand-name clothes, this will be difficult. So decide on some age appropriate things that they should see as wants that they are responsible to work or save for.

1. Saving, spending and maybe some giving

I believe children need to save some agreed upon percentage of their allowance and any monetary gifts they receive, right off the top. First, they should build an emergency fund (they lost a superhero backpack and they need to replace it). Second, they should save for something big that they want (that backpack), so they learn delayed gratification. Before they are ready to open a bank account, they can use separate piggybanks.

Then the rest is for spending, or some for giving, if you believe that it is important for them to learn.

Next we will finish allowances and move on.

John Ninfo is a retired bankruptcy judge and the founder of the National CARE Financial Literacy Program.