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Financial Literacy for Kids
Teaching your children how to save money
June 01, 2011With the Kids home for the summer, chances are you're going to hear a lot of requests for money. From movies to summer festivals, your child's social life might leave you feeling like an ATM, but it's never too early (or too late) to put a stop to the idea that you're a cash cow and give your kids financial lessons that will last a lifetime. It's called financial literacy, and we talked with parents and financial experts for tips on how to teach it.
Let's start with earning money. Parents and our experts agree that children should learn the value of hard-earned pay. At Paul Mpistolarides' home in Geist, 14-year-old Victoria babysits to earn money while 15-year-old Nicholas and 19-year-old Paul help dad at the family production company, Midwest Uplink. Nicholas edits videos and Paul helps his dad on shoots.
Mpistolarides said, "My wife, Judy, and I feel very strongly that our kids do chores and maintain a small source of income. We don't want to gift wrap everything for them. They have to learn some sort of feeling of what it is like to earn a buck, and for the most part, they're all very agreeable about it."
That's a very valuable lesson according to bestselling author, Pamela Yellen, who wrote, "Bank on Yourself: The Life-Changing Secret to Growing and Protecting Your Financial Future". The book details ways families can boost their savings.
Yellen said, "The writing is on the wall. We all need to take responsibility for our financial destiny, and nothing builds a child's self-esteem faster than self-reliance." Yellen believes children as young as 4 years old can benefit from learning about money and earning an allowance.
That might sound young, but many families are doing it. Jennifer Lilly of Westfield has 5-year-old Ben working alongside his 8-year-old sister, Lilly. Ben is in charge of feeding the family dog, and Lilly takes the dog for walks. While Lilly vacuums the floors, Ben wipes down the kitchen and bathroom countertops. The kids earn an allowance for the chores and decide how they want to spend it.
The message about financial literacy is spreading all the way to Sesame Street. It's launched a new video project with PNC Bank. It features favorite characters such as Cookie Monster and Grover learning about money. Even 3-and-a-half year old Elmo earns money by folding laundry and recycling water bottles. Your kids can watch the videos online at www.sesamestreet.org/save or you can pick up a free DVD at your Local PNC Bank.
Other banks are doing outreach to teach children financial literacy as well. Natasha Olivia is the vice president of product profitability at US Bank. She was encouraged to become part of Junior Achievement. The organization teams up with schools around the region to teach children about business, community and personal responsibility.
Olivia recently taught a class of second graders about starting their own business. The students created a product, sold it to earn paper money, and paid taxes. They saved their money and at the end of the lessons, they bought prizes with their earnings. Without knowing it, the students learned important financial lessons, including delayed gratification. In a society where "keeping up with the Joneses" is common, it can be hard to teach children about delayed gratification, but on this point, most experts agree, parents must practice what they preach.
Yellen said parents should help their children understand the difference between something you "want" and something you "need". She suggests telling children about things that you really want, but that you have to save for.
Yellen also advocates full disclosure when it comes to talking to your children about money. She said, "Be honest about where you are financially, and don't be afraid to openly discuss the mistakes you've made and what you've learned from them." So, that means if your kids want to know how much you make or how much the house payment is, according to Yellen, you should show them. Show them a pay stub and your checkbook so they can better understand income and how your family's money is spent.
Bill Losey, a nationally recognized investment advisor, said you should also tell your children how your money is saved. "The habit of saving money is the most important financial lesson a parent can teach," he said. In fact, Losey said everyone, including children, should be required to save part of their earnings. Even if it's just 1 percent of the earnings, Losey said, it will start a habit, and if you start them young, they're more likely to save in the future.
Diane Trout-Cummins, assistant vice president of Indiana Bank & Trust, agrees. She said today's children are tomorrow's banking customers, and that's why her bank is committed to helping kids save with its Piggy Bankers Club. A child can "join" the club with a $10 deposit, and each time the child deposits $5, they'll get a stamp on their club card. After 10 stamps, they'll get a $3 bonus into their account to reinforce the savings habit.
Another bank, the Forum Credit Union in Indianapolis, offers a similar program and gives children a free money box with three slots: one for saving, one for spending and one for sharing. The box helps kids get excited about saving.
Sweet Tooth Ornaments LLC manufacturers a similar product known as, "This Little Piggy Bank". "This Little Piggy Bank" was developed as an entertaining tool to help teach young children the basics of money management. With the help of a parent, the child's money is divided by set percentages into one of four categories: spend, save, invest and give. Once divided, the money is deposited in the four corresponding "deposit drawers" of the bank. The percentages used are predetermined by the parent, and then calculated as the accumulated money is divided. A sample division of money would be: spend 30%, save 30%, invest 30%, and give 10%. For information about this product can be found at www.sweettoothornaments.com.
Megan Deweese of Anderson said her 12-year-old son, Gaige, is already a saver. He puts his $5 weekly allowance in a savings account. Deweese said Gaige likes to keep track of his money, and it's important to them both that Gaige decides how his money is saved and spent.
It's never too early (or too late) to start teaching your child about money, and you will be their biggest influence. A recent Citibank survey of women found that mom was the biggest financial influence for 29 percent, and dad was the biggest influence for 25 percent.
So, whether you help your daughter open a savings account or simply buy a piggy bank for your son, you're getting them started on the path to financial independence, and who doesn't want that for their kids?
Amy Seng Holtzman is a freelance writer, producer, and mom of three from Northern Kentucky. Xavier University, Class of `92. She can be reached at email@example.com.