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I Want That !

It happens to every parent at one time or another. You’re strolling down the cereal aisle, trying to decide what would be the best buy when your child erupts in demanding excitement: “I want that!” Eagerly the child points to a box of cereal that he or she just has to have. Looking at the unreasonable price, you groan and wonder just how you’re going to explain to a five or seven-year old that it’s just not in the budget. “It’s too expensive,” is what most parents will say. But to a five or seven-year old what do those big words “expensive” and “budget” mean? And where does all that money come from anyway? The ATM machine? When parents start hearing questions like this, it is time to teach your children about money matters.

Money Matters for Kids

A child’s perspective on money is often very different from an adult’s. When a child is comfortable and well-taken care of they might assume that Mom and Dad are rich. This view point is encouraged by that machine called the ATM where you can go and get money whenever you need it. Children often do not make the connection between paycheck, bank balance, wise budgeting and saving unless parents talk to them about their personal finances. Janet Bodner, the author of “Raising a Money Smart Kid” states that “Parents are told to talk to their kids about sex, and they are told to talk to their kids about drugs and all of that, but not often to talk about money.” In today’s world of credit cards and interest-only loans it is wise to get an early start on teaching a child how to be money smart.

The Dollars and Cents of Money Matters for Kids

Children need to learn the basic math concepts of dollars and cents as well as how money is acquired. Ms. Bodner states that “Study after study shows that kids learn most of what they know from their parents. From the time they were toddlers, kids have been sitting in the back of the car watching you go to the ATM, and it’d be easy to think that there’s just a little printing press back there spiting out money. But if you explain to them that the bank is like a big piggy bank for Mom and Dad, and just like their piggy bank is empty sometimes, that yours is, too, that’s a simple way of telling them that the cash machine is not an endless supply of money.”

It is also a good idea to show a child a personal paycheck and explain how it works. A trip to the bank to deposit the paycheck is an enriching experience for the entire family. Small and older children can also be included in organizing the family budget. Envelopes with play money could be used to represent different budget categories such as electricity, mortgage, groceries, heating costs and entertainment. Explain that some budget categories like a mortgage (home), heating, groceries, emergency savings, etc. are needs and must be carefully planned and budgeted for. Other items like entertainment, eating out, and vacations are wants which should be saved for. Explain that if too much money is spent in one area, say groceries, then you have to take money from somewhere else, say entertainment, to pay the overage amount. Show this by transferring the play money back and forth between the envelopes. Through this method children can learn to differentiate between wants and needs and how their personal actions will affect the family budget. For example, if Mom or Dad buys me that expensive box of cereal, then I might have to give up a treat at the movie. Including children in planning the family budget helps them understand that dollars and cents are real tools for everyday living.

Real World Experience at Home

Before your children grow up and tackle real world finances, they need to have some real world experience at home. It all starts with a Bank. Set up a savings account for your child or get a cash box and a checkbook and set up your own Bank of Mom and Dad. Give your child a chore chart with monthly or weekly responsibilities that the child must accomplish to receive a paycheck. Decide with your child what would be fair payment for the chores accomplished. Harder chores, such as washing windows, might qualify for a higher paycheck. Set up a pay date and pay your children based on how well they follow through on their responsibilities. Be sure that your children understand the chores and can do them well enough. Younger children can help pick up toys in the family room while older children can help with vacuuming and dusting. Pre-teens can do harder jobs like mowing the lawn and babysitting. Paying your child on time and praising them for a job well done will encourage self esteem and help them gain a positive work ethic. If you have a child that is stubborn and will not pull their fair share then withholding or deducting from their pay check will give them real world experience without the real world consequences.

Taking your child to the real bank or the “Bank of Mom and Dad” to deposit their money will give them a firmer idea of what a bank is used for. They will also become familiar with deposit and withdrawal slips as well as the system of a check or savings book. It is also important for parents to explain about credit cards, loans, and interest. In our instant self-gratification society, children need to have a firm sense of how interest can hurt and help them. Parents can explain that banks charge interest for people to borrow money. Parents can further explain that borrowing for something may result in paying more than what the item is actually worth. Parents can encourage children to save by explaining that a bank will pay interest on their money if they regularly deposit and try to keep their money into a savings account. Parents can also explain that credit cards are like loans which charge the borrower interest.

Children can learn to budget their paycheck money wisely. They can take their paycheck amount and write out a budget for wants, needs, and savings. Older children can pay for their own school fees and lunches. Pre-teens can budget for school, clothing, and personal hygiene items. Parents can expand the real world experience with teenagers by showing them how to shop for sales and use coupons to save money. Teenagers could be encouraged to plan and save for college. They could also learn how to look for paying jobs outside of the home. If a child blows their allotted budget on one frivolous thing, they could borrow from Mom and Dad for their needs and pay the loan back with interest. Making mistakes at home is a great way for a child to learn how to be careful with money.

Money and the Internet

Over the last ten years the internet has had a dramatic effect on how people handle their personal finances. Teenagers need to be familiar with automated bill paying and how banking can be done online. Parents and children together can set up a chore allowance system online through PayJR . This no-cost web-site allows parents to set up a chore chart and a pay scale for each chore. Children can mark their completed chores on-line and the system will send an e-mail letting a parent know that the chore is complete. Parents can log in and track how many chores their child has completed and how much they owe their child. They offer a printable chore calendar: a savings program and a prepaid debit card that teens can charge against a prepaid balance. The card is accepted wherever MasterCard is used and has built in safety precautions that keep teens from spending money on inappropriate adult items. David S. Jones, the CEO of PAYjr.com states that “Our system helps teach teens to budget their money and hopefully will also teach teens to spend and earn responsibly as well.”

Better Financial Decisions

No parent wants to send a child off to the real world with
out a good idea of how to handle their money. In fact, not teaching a child about money matters and how to be responsible with money is a recipe for financial disaster. Children with a good knowledge about money and how to use it wisely will be more confident and will make better financial decisions.

These selected sites can be helpful in teaching your child about money matters:

Earlyearners Teaches children how to save money and how fast interest can accrue by saving just one dollar a day. Also offers savings and investment accounts for both children and parents.

Fleetkids Offers fun educational games that teach children about saving and spending. Kids can compete for prizes.