Adrian Mastracci, fee-only investment counsel says "There are many ways to assist children realize their sound financial futures."

Vancouver, BC (June 18, 2002): Parents and grandparents are very attentive about their children's and grandchildren's money skills. Everything you read points to ensuring that our youngsters have a positive experience with matters of money.

Adrian Mastracci, fee-only investment counsel and president of Vancouver based KCM Wealth Management, comments, "Too many children leave home not fully prepared to handle the daily responsibilities and implications of the financial pillars such as budgeting, balancing the chequebook, credit cards and making appropriate investment decisions."

Mastracci notes, "Parents and grandparents have a long road to teach children and grandchildren the many lessons that lead to sound money management. We cannot just expect this to happen. Children that don't acquire sufficient money skills can face difficult consequences in their adult life."

"However, there are many ways to assist children realize their sound financial futures," says Mastracci, "The first realization is that children look up to their parents and grandparents for direction on their money management. They copy what the important people in their lives actually do, not what they say."

Mastracci says, "In order to demonstrate by example, parents and grandparents should first work through their own financial issues. If money management is not one of their strengths, they may seek help so they can be more effective teachers for their children."

"Be aware that your children can see through any inconsistencies between what you encourage them to do financially versus how you actually conduct yourself," comments Mastracci, "Good habits learned early will form the lasting foundations of responsible money management."

Mastracci outlines 10 concepts that form solid money management skills for all children.

1. "Let them make plenty of financial mistakes"
Yes, that's right! Let them make plenty of financial mistakes. As important, don't rush to correct them. They will foul up often, but allow children to make their own decisions, even the wrong ones. For instance, if they want to buy something with their money, let them even if you disagree. Later, ask them if they are happy with their purchase and discuss the impact of their decision. It is all part of making informed choices. Practice will get it right, and don't sweat the small stuff!

There is more to be learned by children making mistakes than by doing it right every time. They will gain more knowledge sooner if you let them make plenty of mistakes. The key is to learn from their mistakes.

Adults are often not prepared to take counsel from professionals until they have worked through a number of mistakes. Children are very similar; they listen more after making their own mistakes.

2. "Spending and saving"
Start the process by having each child manage a regular allowance, say $1.00 per week in quarters at around age five, and agree on dividing the allowance between the "spending" and "saving" jars.

Allowances are an excellent way to teach children financial responsibility. However, do not link the allowances to household chores. Children receive the allowances so they can learn about money.

The goal is for the children to spend money on items of their choice and pay for them. Dipping into the saving jar is allowed, just like in real life, especially when children are saving for that special purchase.

Teach your children well about saving and spending, especially the spending. This is major step to successful money management. As the children grow older, the allowances increase and they can learn about earning money by working to make extra money at the same time.

3. "When we spend the money, it's gone"
This is a bit of a struggle for young children to grasp. A way to quicken the process is for the child to remove the money from the spending and saving jar and hand it to the cashier at the time of purchase. Discuss the idea that when the allowance is fully spent, there is no more until the next one.

One way to teach good money habits is to discuss the merits of something that the children purchased. You should inquire as to whether the children would purchase something different, whether the purchase has been beneficial, and would they do it again the same way. The answers may surprise you.

If you refrain from telling the children what to do, even when you are completely right, they will develop better money habits sooner.

4. "We can't buy everything, we make choices"
Give children options to decide on how, what, where and when to spend the money. The concept "if there is no cash, you can't buy it" will slowly take a foothold. Further, there should be no borrowing on future allowances, especially for young children.

It is important to allow children to actually spend a good part of their money. Trust me on this one, it is the least cost lesson that you can convey to a child. It will save you a bundle later.

Assist your children in understanding consumerism. Take them shopping whenever possible and try to evaluate both the product and the service. As an example, children can learn plenty by evaluating the food and the service when the family eats out at a restaurant.

5. "Pay yourself first"
One of the essential lessons is to save for something that children want. Condition the children to put aside a certain amount of their cash intake on a regular basis. Start with something manageable, say 10 to 15 percent, and increase its over time, say to 25 to 30 percent.

Try to train the child to put aside the savings money first before other allocations. Hence, the phrase "pay yourself first". You can also illustrate the difference between saving for something in the near future, say the purchase of a small gift in a week or two, versus long-term savings such as for the bicycle.

6. "Becoming an owner"
Begin a simple stock portfolio that you can afford for your children or grandchildren. Over time, select three or more stocks that the children can easily relate to - say a toy company, music company, soft drink company, computer firm or the famous restaurant.

Of course, ask for their input in the stock selection process and engage them in discussions of how these companies affect their life. Make sure that at least one of the chosen companies sends a regular dividend, no matter how small, and encourage the children to check the stock prices.

My investment counsel hat is being removed, but only for a brief moment, to suggest that you put aside thoughts of long-term asset allocation for the starter portfolio. Concentrate on making it an experience that children can relate to in their everyday life. This is the more important lesson.

If possible, select a company who holds its annual general meeting near you. This allows you to take the child to the meeting and experience firsthand what it means to be a shareholder. Of course, be prepared to exit early as their attention span may be short, especially in the early years.

7. "Credit cards"
Children should receive training on the philosophy, the implications, and the responsible use of credit. Keep in mind that having credit is a privilege, not a right. Children who do not understand the implications of credit, often find themselves swamped. An essential point is that credit is never free money and must be repaid. The inappropriate use of credit is one of the major mistakes made by adults.

Make sure that each child's first credit card has small limits that you are comfortable with. Also ensure that the invoices are paid on a timely basis, and in full.

Once they become teenagers, your children will likely receive plenty of applications for credit cards. This intensifies immensely when they reach the college years. Often, credit cards do not require parental permission and may allow children to accumulate more debt that they can repay.

8. "Compound interest"
Explain the magic of compounding interest. As an example, investing $50 per month at 7% per year, compounded monthly, accumulates to about $26,000 in 20 years and $61,000 in 30 years. A second one is to keep pace to a 3% annual rate of inflation on $1,000 of today's dollars will require just over $1,800 in 20 years and $2,000 in 24 years.

Another area that children can visually see the effect of compounding interest is on the growth of their savings account when the money is invested in vehicles such as a money market fund, government bond or certificate of deposit.

9. "The household bills"
Discuss the cost of running your home - rent or mortgage, food, telephone, utilities, property taxes, eating out, personal items, gifts, car insurance and gas - and how to help the family save money. Teach the importance of paying bills before penalties are incurred.

Get your children involved in household spending decisions and simple bill paying. They will be doing the same thing as you are, sooner than you think.

10. "Writing the cheque"
Allowing the older children the actual life experience of running their own chequing account is almost a miracle. There is nothing more definitive than children writing cheques from their own accounts. Sometimes it is pure agony to watch the money flow out.

You will find that most financial institutions can provide suitable accounts for children of all ages. Take advantage of as many of these provisions as possible and as your children require them.

"Your major goal is to demonstrate a positive attitude towards money, to take responsibility for your actions and to be accountable. That is how you convey the development of good money habits," comments Mastracci.

"Walk the talk with your children and grandchildren. The sounder your financial judgement, the better theirs will be," notes Mastracci.

"Treat your own money with due respect and allow your children to share that respect," Mastracci summarizes, "This is one of the best investments you can make."