Teaching Children Money Management Skills

Has your child ever thrown a temper tantrum at the check register when you said no to a candy bar? If so, you are not alone. Most parents have experienced these frustrating moments when they are tempted to indulge their children to keep them happy.

The Family: A Proclamation to the World states that parents have a sacred duty to provide for their children's temporal needs. These needs include basics for survival, like food, shelter, and clothing; they may also include other nice things like toys. In addition to providing for their children's immediate needs, parents need to provide for their children's future temporal needs by teaching them to be financially independent adults.

Recent research shows that today's youth have large sums of money floating through their hands as extra income to be spent on snacks, clothing, and cars. A 1997 study sponsored by the U.S. Department of Labor found that 40% of children receive regular allowances or handouts from their parents or guardians averaging $50 per week.

Fifty dollars a week is a hefty sum of money, but youth today have plenty of opportunity to spend it-on everything from comic books to movie tickets to video games. And marketers are taking advantage of children's deep pockets-by age twenty, the average child will have seen 360,000 thirty-second commercials. With so many influences on children's perceptions about acquiring material goods, it is critical that parents teach their children sound money-management skills.

Experts recommend several ways parents can teach their children about money and foster positive attitudes and habits. They suggest parents use everyday opportunities like grocery shopping, paying bills, and withdrawing cash from the ATM to teach their children. This teaching can begin as early as age three, or whenever the child begins asking about money.

The following tips can help parents raise financially responsible children:

• Talk to your children. Talk about how you earn money and how you plan to spend it. When you take your child to the grocery store, explain your purchasing decisions-"We are buying strawberries because they are on sale," or "We're using coupons I clipped from the newspaper."

• Be a good role model. Your children will develop their financial attitudes and behaviors by what they see you do, not what they hear you say.

• Actively encourage good values. Teach your children the value of work and teach them responsibility. Teach them delayed gratification by letting them save towards a goal of a new bike or video game; let them know that even you have things you want and cannot have.

• Set limits. Even if you are able to buy your child everything he or she asks for, refrain from being overindulgent. By fulfilling every whim, you may deny your child of several things: appreciating things that cannot be bought; being motivated to work hard; persevering through obstacles and frustration; and achieving a hard-won goal.

• Learn to say no to your child and be firm.

• Have them manage money now. Give your child an allowance, whether or not it is tied to chores, and give him or her some general guidelines on how to spend and save it. The emphasis is on general because your child should have enough freedom to make his or her own decisions and mistakes. Encourage young children to bring their allowance with them when you go grocery shopping. Then they can decide if they want that candy bar enough to spend their allowance on it. If you do not want to give your child an allowance, allow him or her to manage money by letting him or her pay the grocer or the parking attendant.

• Teach them to give. Help your child experience the good feelings of sharing his or her income with others. Encourage your child to regularly contribute a portion of his or her income to a charity or help your child buy treats for the family. "Adopt" a family through your church during the holidays or give your child the responsibility of buying or making birthday gifts for friends. Also, teach your child to contribute in ways other than giving money by giving time, energy, and skills to help someone else.

Experts also instruct parents to tailor their teaching to their children's age, maturity, and level of understanding. The following guidelines are ways parents can teach their children about money:

• Allowance. Pay allowances at fixed and regular intervals, and define each child's financial responsibilities. Kids will generally learn more about money if they actually have money of their own to spend and save. One rule of thumb is weekly allowances of $1 per year of age.

• Saturday job auctions. Give your children the chance to earn extra cash by doing jobs beyond their expected chores. Award jobs to the lowest bidder as part of a "Saturday Job Auction."

• Money jars. Help children divide their allowance or earnings into four jars-charity (10%), quick cash (30%), medium-term goals (30%), and long-term goals (30%).

• Encourage children to divide gifts the same way, but give them the flexibility to make their own decisions.

• Bill paying. Have high-school students pay the family bills for one month (with the parents' money, of course). Use play money to recreate bill paying for younger kids. Help them see what you have, what you need to pay, and what will be left over for your discretionary spending.

• Grocery shopping. Involve children in preparing a grocery list, and then take them to the store with you. Teach them how to compare prices by making a game out of finding the best deals. Have the children hold the coupons, and let them hand the money to the cashier. Sticking to your original list will also demonstrate one way to limit impulse shopping.

• Budgets and spending plans. Help teenagers who are earning money create and follow a budget. This is especially important before they leave for college, where they will have significant financial responsibility. Emphasize the freedom that comes when they plan their spending and saving.

• Board games or computer programs. Play money-related board games or computer programs with your children.

• Vacation planning. Help children plan a family vacation. Involve them in the decision-making process for all aspects of the trip, such as food, travel, hotel, souvenirs, activities, etc.

• Compound interest. Teach your children the benefits and penalties of compounding interest. Teach them they can earn interest by matching their savings 25 cents on the dollar or help them open a savings account or mutual fund. Teach them the drawbacks of paying interest when they borrow or purchase on credit.

• Savings and checking accounts and credit cards. When your child is mature enough, help them open a checking and savings account and teach them how to balance a checkbook. If your teenager is financially mature enough to apply for a credit card, find one that allows you to set the spending limit and receive a monthly statement of your child's purchases. Review the monthly statements with your child and teach them the importance of paying the balance each month.

• Stock investments. Help children learn about the ups and downs of the stock market early in life. Then they will most likely be more comfortable with investing when they are adults. Give gifts of stock in companies your children are familiar with to encourage them to follow the stock market.

• Tax returns. Taxes are a significant expense that few children consider. Have your child sign his or her tax return. If your child is employed, look at his or her pay-stub together and discuss how taxes work and why they are necessary.

Experts warn parents to teach their children about money in a way that is encouraging, supportive, and fun. Parents should guide and advise their children on purchasing decisions rather than dictate or command. They should also encourage and praise their children's good choices rather than criticizing or rebuking poor choices. Most children will eventually learn from experience when they have made poor purchasing decisions. Experts also counsel parents to be consistent but allow for children's differences when teaching money-management skills; some children are "tightwads" while others can't hold on to a dollar for more than a day.

Teaching children money-management skills takes practice and patience. Both parents and children will have to make adjustments and correct themselves when they make mistakes. The key is to be persistent and not get discouraged. Parents who make a conscious effort to teach their children money-management skills will strengthen their relationship with their children and help them to be financially responsible individuals.

There are many helpful resources for teaching children money-management skills. Check out Money Doesn't Grow on Trees: A Parent's Guide to Raising Financially Responsible Children by Neale S. Godfrey and Carolina Edwards. Or check out a website such as http://practicalmoneyskills.com/

Written by Susan Sheldon, graduate research assistant, and edited by Stephen F. Duncan, Professor, School of Family Life, Brigham Young University.