Monday, June 21, 2010

Teach your kids responsible money habits early

By Dr. Jason White
Director of Investments
Family Investment Center

Every parent faces challenges in trying to educate their children about the basic principles of financial responsibility. Children and young adults are thirsty for personal financial education. Granted, their interest generally focuses on topics like how to earn a million dollars by age 23 and spend happily ever after, but we as parents and educators can use this materialist instinct to teach basic personal financial responsibility.

Benevolent employers figured out a long time ago that employees are much more likely to participate in savings programs, such as 401(k) plans, if the employer agreed to match employees’ contributions. You can apply the same logic with your kids. If Johnny manages to save $2 from his weekly allowance, match it with a dollar of your own.

Every child should have a savings account at a local bank. Teach them to deposit their savings, rather than keep idle cash in a piggy bank. After the first few interest payments are credited to their savings account, they will begin to understand and become excited about saving money.

Once the child has accumulated a few hundred dollars in that savings account, open a brokerage account for them. I’m serious! Use an online brokerage company to maximize the child’s connectivity and interactive education. Encourage them to invest in companies that they “do business with” like McDonalds, Disney or Microsoft.

Involve your children, to the extent that you are comfortable, in family financial decisions. Even young children can begin to comprehend the amount of money it takes to pay the mortgage, and the electric bill, and the groceries, etc. Once they realize the constraints of the family budget, you may find fewer temper tantrums in the checkout line when you say no regarding a “must-have” candy bar request.

Parents can also teach children wise shopping and spending habits. Let them look for bargains and coupons in the Sunday paper for products they know and use. Teach them to comparison shop and to determine relative prices. For example, should I buy the jumbo bottle of hair gel, or is the smaller size cheaper by the ounce? I am amazed how many college students, and adults for that matter, don’t seem to have the ability to do this.

Finally, teach your child about the pitfalls of debt, particularly credit card debt. The earlier they learn the expense of using other people’s money, the better. If you loan your children money to buy a toy or video game, charge them interest. They will quickly discover what they thought they couldn’t live without, maybe they could have. You will be teaching patience, frugality and personal responsibility – a set of qualities we could use more of among today’s youth!

As your child gets older, encourage him/her to read a daily newspaper and watch the evening news. Staying plugged in to events and changes in the world help to round out an individual in more than just a financial sense.

Remember – lead by example. Believe it or not, your children really do look to you for guidance!

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