By Adrian Mastracci
North Shore News
Business Section, "Loose Change"
Sunday, March 3, 2002
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. Good habits learned early on will form lasting
foundations of responsible money management.
Here's my summary of the top 10 money concepts for children.
1. "Let them make mistakes"
Yes, that's right! Making plenty of financial mistakes teaches volumes.
And don't rush to correct them. Practice will ultimately get it
right.
2."Spending and saving"
Start a regular allowance at around age four or five, say $1.00
per week in quarters. Agree on dividing the allowance between the
"spending" and "saving" jars. Give allowances
so children can learn about money, not for household chores.
3. "When we spend the money, it's gone"
This is a struggle for children to grasp. When the allowance is
fully spent, there is no more until the next one.
4."We can't buy everything, we make choices"
Give children options on spending the money. The concept "if
there is no cash, you can't buy it" will take a foothold. Allow
children to spend a good part of their money. Hold your nose if
you think they're wrong.
5."Pay yourself first"
It's essential to save for something that children want. Condition
the children to regularly put aside a certain amount of cash. Start
with 10 to 15 percent, then increase it over time, say to 25 to
30 percent.
6. "Becoming an owner"
Begin a simple stock portfolio. Say three or four companies, with
one being local. Make it an experience that children can relate
to in their everyday life.
7. "Credit cards"
Children should understand the implications and responsible uses
of credit. Having credit is a privilege, not a right. Credit is
never free money and must be repaid.
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.
9. "Household bills and budgeting"
Discuss the costs of running your home. Involve children in household
spending decisions, simple bill paying and budgeting. They will
be doing the same sooner than you think.
10. "Writing cheques"
Allowing older children to operate their own chequeing account is
almost a miracle. There is nothing more definitive than children
writing cheques from their accounts. Sometimes it's pure agony to
watch the money flow out.
Walk the talk with your children and grandchildren. The sounder
your financial judgement, the better theirs will be.
Demonstrate a positive attitude towards money, take responsibility
for your actions and be accountable. That conveys good money habits
that last a lifetime.
Note: This column summarizes my newsletter on the "Kids
Money" page of my web site. Please leave me a message if you
wish to receive the full version.
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