Your kids learn their money habits from you. Try these suggestions for setting good examples:
1. Teach the Value of Saving. Karyn Hodgens, a veteran teacher, and her husband created a spreadsheet to explain the concept of compounding to their free-spending son. "Something clicked. He said, ‘You mean I'll earn more money just by letting it sit there?' He was an instant convert," Hodgens says. Soon, she and husband John, a software engineer, developed KidsSave, a software program that creates virtual accounts to track the real money in piggy banks.
2. Share the Gift of Giving. Susan Beacham gives her teenagers coupons for family outings. Sometimes, the coupons are just for fun, like a Milwaukee Brewers game. Others may include a lesson, such as a coupon to purchase a purse made by refugee-women-turned-entrepreneurs and an invitation to meet them. "It's important that my daughters - and all kids, really - see that charity isn't just writing a check. It's about helping real people," says Beacham, a former investment advisor who founded Money Savvy Generation, which offers a four-chambered piggybank that teaches children how to save, spend, donate and invest.
3. Use Technology. Tech-savvy kids have plenty of options for online money-education sites, such as kids.gov. But before they play with virtual money, they must be comfortable with the real thing. "They need to touch dollars and coins, count them, stack them and learn that they're concrete things," says Neale Godfrey, author of "Money Doesn't Grow on Trees."
4. Walk the Walk. Kids watch more than they listen to lectures, Godfrey says. Agrees Beacham: "You may be the greatest money manager in the world, but if you don't show and tell your children what you're doing, they can't learn from you."
5. Make Allowances Count. "An allowance teaches children the natural consequences of money: The only way to get it is to earn it," Godfrey says. So what's an appropriate allowance? She suggests:
• Depending on your budget, paying your children $1 each week, or every other week, for each year old they are. • At age 12, encouraging your children to earn extra money for neighborhood jobs, such as baby sitting or dog walking. • Weaning them off allowance by age 16, when they can work part-time or summer jobs. By then, you should only pay for necessities, such as clothing.
Beacham suggests kids pay for actual expenses with part of their allowances - such as school supplies or video game rentals. "It teaches kids how to make hard choices," she says.
6. Go Beyond Spending Lessons. Require kids to save, invest and donate. "They need to learn that money isn't just for spending," says Godfrey. You can do this by having your children divide their allowance or gift money into four clear jars using these labels and percentages:
• Charity, 10 percent. Get them involved in giving money (and their time or old toys) to charity. • Quick cash, 30 percent. This is instant gratification money, and they get to choose how they spend it (with you determining the overall parameters). • Medium-term savings, 30 percent. They learn to push off instant gratification and save for something larger. • Long-term savings, 30 percent. Open a bank account or 529 account so they can save and contribute to their future, such as a college education.
7. Create Money-Matching Programs. Matching your kids' savings - the way employers match money in a 401(k) plan - can be a powerful motivator, says Godfrey. Grandparents might also offer matching funds.
8. Don't be Too Generous. Even if you can afford to give your teens a comfortable allowance - don't, suggests Godfrey. "By about age 12, kids should do small, paying jobs for friends and family members," she says. "By 16, they're capable of getting summer jobs and saving for year-round expenses."
This material is for informational purposes. Consider your own financial circumstances carefully before making a decision and consult with your tax, legal or estate planning professional.
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