Friday, June 23, 2006
From Readers, the Best Ways to Raise Money-Smart Kids
by Laura Rowley
Friday, June 16, 2006
The other day, the kids in my car pool started raving about "Over the Hedge," the new DreamWorks flick. I immediately tried to create a diversion: "Hey, check out that cool yellow convertible! So, are you guys trying out for the swim team this summer? You know, I think we'll be a little early for school today...."
It worked -- my kids haven't asked to see "Over the Hedge" yet. If we see the film now, it will cost $38. If we see it in six months on Netflix, it will cost about $2.50. Imagine this was a stock: If you could confidently predict it was going to drop 94 percent in six months, wouldn't you wait and buy low?
Teaching children the virtues of delayed gratification is among many challenges on the kids-and-money front. A few columns back, I asked readers for their best ideas on how to teach kids about money (see "Teaching Your Kids to Be Wealthy and Wise"). Readers responded generously, and some of their techniques follow:
At the end of every year, whatever our nephew saves and invests -- in stocks -- we match. That includes Christmas money, birthday money, and anything else he manages to save up. We started last year and bought him a few shares of Disney (DIS) since that's what he wanted to buy. It worked. We have him reading to tell us how the stock is doing, how much it goes up and down. Next December, he's thinking about eBay (EBAY). He has from Christmas until the second week of January to decide where his "401(k)" is going.
-- Rebecca A. Gushue
As you might imagine, clothing can be a huge money pit with teenage girls! What I've found to work wonders is giving our 13- and 15-year-old a set amount once or twice a year. They choose how to spend this money, be it on one or two high-priced items or a multitude of moderately priced items.
At first I was wary of this plan -- I thought they might actually only buy one or two items, and I'd be stuck with the problem of how to clothe them for the rest of the year. It never happens! The fact that they have to physically shell out the money and see the pot dwindle is an amazing motivator for good shopping sense!
-- Nancy Gilmore
Our seven-year-old began getting an allowance of $1 when she started kindergarten. This is not tied to anything -- she's expected to contribute to the household in ways that are age-appropriate without being compensated. My objective in giving her a dollar was simply to teach her how to manage money. Every week I count out 10 dimes, and then she has to contribute to three areas that I want to make second nature to her: 20% for giving, 20% into savings, and the remaining 60% she can spend on whatever she wants.
-- Mark Brown
I've found that kids learn the most when they're playing. If you play with your child "shop keeper," "bank," or other games with simple, real-world applied rules such as profit and cost, they tend to get a much better sense about money.
-- Manuel Flores Kuri
I encourage my kids to live in an eBay world, where closets of unused sports gear can be turned back into cash. It also shows them depreciation when they say, "That cost me $100, and all I got for it was $10!" I also point out car commercials and teach them about leasing vs. buying, new vs. used. I invest in real estate and often take my kids to the closing. I explain what it means to pay rent vs. receive it. I think that it's important for kids to understand the process and not to be afraid of investing.
-- Mark Adams
I, too, have used a similar system of chores and rewards, but we would sit down together and decide on a "value" for each chore. The system keeps them from "cherry picking" the most rewarding ones and skipping the not-so-rewarding ones.
-- Ken Neef
Chores and helping around the house are not optional but part of being a family member. Meanwhile, I view school as their job, and to that end, I pay them for the grades they receive. (They earn more by doing well, and that sounds a lot like the real world). I use $20 for an A, $10 for a B, $0 for a C, with a $10 kicker for straight A's. (The amounts are changed with age).
The twist is that they only get half the money, as the other half is deposited into their savings account. It teaches children that they need to plan and save, and also how to budget since they won't get "paid" again until the next report card.
-- David A. Bruno
Now that my son is 16 1/2 and can drive, I pay him $10 to do the family grocery shopping (which I hate). It takes him about one hour, so he realizes the pay is very good for someone his age. He loves the independence and is learning comparison pricing and how to estimate food usage for a family of three. He's learning about price and quality (cheaper off-brands are sometimes horrible products, sometimes remarkable values). He's looking at labels for fat and salt content, too -- on his own!
-- Karen Steinle
We encourage my son, 10, to take on additional tasks around the home to earn money: Raking leaves, sweeping walkways, doing laundry (not just his own but everyone's), etc. However I don't offer him an amount, I encourage him to negotiate a price for the job. I first tell him what I need done and make sure he understands the scope of work and the expectations for quality. Then I ask him how much he wants in terms of pay for the job.
If his bid is too high, I negotiate with him a lower price, all the while coaching him when he makes an error. If he bids too low I sometimes take the offer immediately. He quickly catches on and realizes that he has left money on the table. Next time, for the same or similar task, he shoots higher on his initial bid. Sometimes we negotiate an incentive for either higher-than-required quality or expediency.
-- Robert J.
I co-founded a company, Early Earners, dedicated to ultimately reversing the negative national savings rate trend. Ask any one of us if we wished we started saving $1 a day at age 5 in a savings account that paid a decent interest rate and we would say yes! We focus on families and children because we want to influence a new generation with this idea. Keep talking about it!