Eric Leese is only 4 years old, but already he’s working for his money.

He used to ask his parents for money to buy toys. Now he earns a quarter if he makes his bed or picks up toys or laundry, said his mother, Ann Leese of South Middleton Twp., Pa.

You want your kids to learn how to use money, to make good financial decisions, but where do you begin?

Money – like sex and religion – is a big, personal topic.

Don’t avoid the subject or it becomes something mysterious to kids, said Laura Fisher, director of American Bankers Association Education Foundation and mother of Jack, 6.

Talk about money and your values every chance you get.

“It’s not easy, and it’s as much of a learning experience for the parents as the kids,” Fisher said. “You don’t get one dose of money management and you’re cured.”

Handling money well is more about habits than knowledge, and it’s best to establish those habits early, she said.

Children typically mimic what their parents do with money, said Rob Rutz, PNC Bank’s director of client and community relations in Central Pennsylvania.

Economics 101

For an eye-popping lesson on why parents can’t buy every toy in the store, Mom and Dad should cash their paychecks and lay the cash and their bills out on the table at home, said Chris Rockey, PNC Bank’s manager of community development banking in central Pennsylvania. Match up the bills owed with the cash to pay it. Your children will see where the money goes.

“It puts in perspective that it costs money to live in a house and for electricity, groceries. It’s a very holistic way of teaching money management.” Kids as young as first grade will get the picture, Rockey said.

Allowance

Some experts suggest giving kids an allowance when they start asking for things. Others say wait until a child is 8 or 10.

Help the child divide it up: some for saving, spending and sharing, Fisher said. They don’t have to be equal amounts.

The saving part is for special purchases, such as a bike. The share money can be for church, a friend’s birthday present or to help an endangered species.

Children are bombarded with messages about spending, but hardly any about savings, Fisher said.

When her son was 8, Jayne Pearl started giving him an allowance.

“He just couldn’t wait to experience spending it, and it meant nothing,” said Pearl, of Amherst, Mass., author of “Kids and Money.”

So she gave him more.

The catch was she no longer gave him lunch money. He could buy a school lunch or make his own and keep the $2 he saved. He realized by making his own lunch, he could afford a CD every other week.

Gradually she added money, letting him make choices about guitar lessons, school clothes and more.

A lot of parents base allowance on chores or grades, but Pearl doesn’t. Her son was too eager to shirk his duties. Plus if one sister has to study hard to earn Bs and the other aces every test, it’s not fair to base allowances on grades.

Whether your child’s a saver or a spender, she needs financial education, Fisher said.

“We feel financial literacy should be almost mandatory, not just with schools, but with parents,” Rockey said. “If you look at some of the issues plaguing our economy now, we are a country of debtors. We’ve lost the concept of savings.”

It’s important to help children set goals that are meaningful to them, Pearl said.

After her son bought the electric guitar for which he’d saved a year-and-a-half, he threw himself on his bed and cried, Pearl said. She thought he had buyer’s remorse, but it turned out he was overwhelmed that he had reached his goal, she said.

“This goes beyond dollars and cents. … The power, the pleasure, the confidence, you just don’t get that from being given things,” Pearl said.

There were plenty of times she bit her tongue when she felt he was saving for something dumb, she said.

“You want your kid to set goals that are meaningful to them and experience the consequences. You’re allowed to make one comment, then shut up and let them do what they want to do,” she said, as long as the child is keeping to the family’s moral standards. If he thinks he’s made a mistake, you can help him learn to save receipts and negotiate back a refund or store credit.

“I’d much rather teach my kids when the stakes are $2 than when they are $10,000,” Pearl said.

“I do think there is a value in experience,” she said. “When the parent puts more control in the kids’ hands, they’re going to see the payoff.”

By the time her son was 11, she increased his allowance to the point where he was buying his toiletries, sports equipment and guitar accessories. “It was a huge allowance, but I ended up spending less,” because he prioritized, she said.

She became his ally and coach, asking him to replace the $20 jeans he wanted for a $12 pair from the clearance rack.

“If there was money left over, he could keep it. That’s a great incentive,” Pearl said. “When the money is coming directly out of a parents’ wallet, they don’t think twice out of it, but all of a sudden it means something.”

“You’d be surprised at the number of children who think money grows on plastic,” Rockey said. Unless a parent explains it, they don’t understand that a credit card is a like a loan they need to repay.

There’s a huge need for teenagers and college students to learn more about credit cards, Rockey said.

“As soon as they turn 18 they have a plethora of credit card offers. Many of them take advantage, not really understanding what that means,” he said. “These teenagers are graduating from college with a huge debt.”

Many start their professional lives needing to work two or three jobs just to catch up with their credit card and college loan debt, Rockey said.

“If you start young and you continue to reinforce financial literacy throughout their lives, … hopefully they’ll be more successful in life as well,” Rockey said.

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Helping your children become financially literate

– If you decide to start an allowance, be sure you have the money on hand every week. Be consistent, regularly giving the allowance and taking the child to the bank to deposit it.

– Don’t treat money like a taboo. Even if you consider your salary personal, tell kids what percent of your income you spend on bills, eating out and fun stuff.

– Talk about why it is important to save.

– Explain the benefits of banks – safety and interest. Most banks will let a child open an account with no minimum balance. Help your child open a savings account and make regular deposits.

– Discuss the difference between needs and wants.

– Show young kids how many pennies make a nickel and how many nickels make a dime.

– When you’re grocery-shopping, let them find the item on sale or the one you have a coupon for.

– Reinforce the benefits of savings to older children by setting up your own 401(k) at home. Author Jayne Pearl explains what worked in her family at www.kidsandmoney.com/slide6.html. Bank Web sites also have educational ideas.

– Remember, it takes time to train you and your children.

Sources: American Bankers Association Education Foundation, Commerce Bank, PNC Bank

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ON THE BOOKSHELF:

“Alexander, Who Used to be Rich Last Sunday” by Judith Viorst

“Have Wheels Will Travel” by Anne Mazer

“Money Trouble” by Bill Cosby

“Henry and Beezus” by Beverly Cleary

“Rent Party Jazz” by William Miller

“Germy Blew It Again” by Rebecca Jones

“The Big Buck Adventure” by Shelley Gill and Deborah Tobola

“Millions” by Frank Cottrell

“Owl in the Office” by Ben M. Baglio

“The Go-Around Dollar” by Barbara Johnston Adams

Source: Commerce Bank

PH END FISHLOCK

(Diana Fishlock is a staff writer for the Patriot-News of Harrisburg, Pa. She can be contacted at dfishlock(at)patriot-news.com.)

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