This is a guest post by DiAna Kelley, founder of the Giving Me Life Foundation, a nonprofit organization that teaches strategies about monthly budgeting, credit, and financial retirement to teenagers and young adults in order to create healthy financial lifestyles.
Earlier today, Amazon announced a new feature that will allow teens to shop online within their own accounts, while letting parents either approve every order or set pre-approved spending limits – all under one Prime account.
Guess which topic most parents say is easier to explain to their kids than the birds and the bees, death or politics?
You guessed it: Money. A whopping 77 percent of parents can talk more easily about finances with their kids than they can other challenging topics.
That’s good news on the financial front. It means money isn’t a taboo topic in most U.S. families, according to a new survey by Wakefield Research for Junior Achievement and the Jackson Charitable Foundation. The Children’s Financial Literacy Survey included 500 children, aged seven to 10, and their parents.
Other key survey findings:
- 77 percent of parents believe the best place for kids to learn personal finance basics is at home. Good thing, since only five U.S. states (Alabama, Missouri, Tennessee, Utah and Virginia) require high school students to take one personal finance course in order to graduate, says Champlain College’s Center for Financial Literacy. Eleven states plus the District of Columbia have zero personal finance requirements in their high school curricula.
- Parents think kids should learn about money as young as age five, and by age eight, on average. Many kids begin to start understanding the connection between numbers and money in kindergarten (“Five pennies is the same as a five-cent nickel.”). By age eight, kids may understand that money is exchanged for goods and services (i.e. to buy stuff).
- 92 percent of parents save money—for emergencies, college tuition, and retirement. Good on you, parents! You’ve got the most important savings goals covered. Of course, we don’t know how much the surveyed parents are saving. But hey, any savings amount is a good thing.
- 82 percent of kids earn allowances from parents for doing chores, getting good grades, doing homework and doing good deeds. Learn more about the pros and cons of connecting allowance to these accomplishments.
Of course, all is not rosy when it comes to kids and money. Many of the young survey respondents showed they have a lot left to learn about finances. But hey, the oldest kids surveyed were only 10. They’ve got time:
- 33 percent of the kids surveyed haven’t yet been taught how to get or earn money. Uh oh. Is that a sign that it’s time to talk about extra summer chores for pay, parents?
- 41 percent of kids don’t know how to spend money. Even kids as young as 10 can begin making some simple spending decisions. How about having your kid help pick a birthday gift (with a maximum dollar amount) for a friend? Or choose how to spend their souvenir money during your summer vacation?
- 47 percent of kids haven’t learned how to give money to help people. An easy fix: Many parents use the “three-jar system,” (or some version of it.). They require their kids to split their allowances three ways: Spending, saving and donating. This way, giving money to others becomes an automatic habit. Be sure to let your kids help decide where their donations will go.
- When asked why they think people put money in a bank, only slightly more than half (53 percent) of kids said “saving it so they won’t spend it.” First, banks and credit unions are almost invisible to kids, since parents don’t physically visit branches anymore. You could make a point to drop into your bank or credit union occasionally, or look online for kid-friendly videos like “Roles of a Bank” from CashVille Kidz.Just as important, though, is explaining to your kids how banks, budget categories and savings accounts make it easier for them to separate their spending money from savings.
- Only 25 percent of kids surveyed know you can earn interest on savings. Interest can seem like a tricky topic to explain to kids, for sure. How about sharing this “Schoolhouse Rock” classic to help make the concept clear?
For more about the survey, along with other kids, work and money topics, visit Junior Achievement’s website.
(photo courtesy © Paul Hamilton cc2.0)
We’ve been using Greenlight Cards with my 8 and 10 year olds for about five months now. In the early days, the kids were overjoyed just to have cool looking cards with their names on it and my wife and I were pleased with the convenience of easier management of requests to buy Pokemon cards on Amazon.com or little games on the app store.
Over these past few months, however, I’ve realized the questions coming up and the conversations happening are much more meaningful long term for these kiddos than simply having plastic with their names on it. Here are three of my favorite talks we’re having on a recurring basis that wouldn’t have happened without the Greenlight Card.
What’s the difference between a debit and a credit card?
It started when we were checking out at the grocery store, and I let one of them buy his own “cool new pencils” using money on his Greenlight card. The keypad at the checkout asked him “Debit” or “Credit, ” and I told him to press DEBIT and then type in his PIN. He was happy to comply, but later in the car asked me, “What’s the difference between credit and debit?” This started our conversation about how using a debit card means you’re just transferring money that you already have to the merchant, whereas if you were using credit, you were actually borrowing money (for a fee of course) that you promise to pay back later. I explained to him that he’d need a few more years of “practice” demonstrating good decisions before having the privilege of getting real credit from me or anyone else!
How does gratuity work?
We love to eat out in our family. Friday night is Taco Night at Verde in Atlanta, a tradition that both the kids and parents love dearly. I usually will ask the boys if they have their Greenlight card and, if so, I’ll transfer money to their card (using my phone) so they can handle the bill. This is especially fun to watch because, of course, they had to be explained the process. First, you review the bill to make sure it’s accurate. Then you give the waiter your card so they can go swipe it. (I told them the waiters are going to find out if they have any money on the card!) Finally, what comes back is the receipt they will need to sign and add gratuity to.
We’ve had spirited debates occasionally about whether we had good service (earning the waiter sometimes 16-18 or even 20%!), or poor service (which might get them down as low as 12-15%). This exercise usually is also accompanied with some stellar math practice too. I confess, this Dad is usually only as much help as the calculator on my iPhone.
Side note: I’ve detected a pattern that is a life lesson for all of us. The most common indicator of “good service” by my kids is how often the waiter or waitress smiled at us. If they didn’t smile (but nailed the service), the kids have a hard time saying they deserve a big tip, but the times we sit with empty water glasses for half an hour but get a big smiling apology, the boys will usually argue that the service is awesome.
Contributing to the family with chores in exchange for an allowance.
My favorite new lessons learned lately have been around the importance of contributing on a regular basis with day-to-day tasks around the house. In return for this contribution, they receive a small allowance, calculated by their age.
Before allowances, my boys were constantly angling to make deals with me like: “If I do X, can I earn $5?” This bargaining went on so much that it became an argument to get the basic household tasks done. This is why we started an allowance. We made a short one-page contract with each of them that outlined the chores they were expected to do as often as possible and these were covered by the allowance. Any extra projects they could find to help out around the house that wasn’t on that list were fair game to make a deal (e.g. Help mom clean out the attic for $5).
Having the “automatic chores” for “automatic allowance” has been amazing. And it even works!! As a tip for other parents, here are some of the chores that have worked well for both the 8 and 10 year olds:
- Set the table before each meal.
- Make the drinks for each person.
- Load the dishwasher.
- Empty the dishwasher and put away things you can reach.
- Make your own lunch before school.
- No screen time in the mornings or before homework is done in the afternoons (not a chore, but seemed worth putting in writing to make life easier).
- Take the trash out whenever asked, without complaining!
- Roll the trash cans to the curb on Wednesday nights and empty ones back to the house Thursday.
- Make your bed every day (eh, not so much, but once in awhile it happens).
- Hang up your towels after showers.
- Sweep the kitchen when asked.
I think our favorite part about this system has been the expectation that these are done WITHOUT COMPLAINING. You parents know what I mean. Sometimes, it’s easier just not having them to do a job so you can avoid another argument. But I suppose because we were so explicit when we came up with this system about the “no complaining” rule they actually heard it.
Plus, just like us adults, they like seeing that weekly allowance hit their accounts as well!
At some point, your kids have probably watched you:
- Mumble under your breath (or louder!) as you work on your April taxes
- Gripe about how much tax disappears from your paycheck
- Make a not-so-nice comment about sales tax added to your purchases
Taxes can be an irritation, for sure. However, it’s also important to remember—and to help our kids understand—that a lot of our tax money goes to helpful services from which we all benefit. Here are some ways to help your kids understand just what taxes are all about:
Play the “Who Pays For It?” Game
Keep the tax concept super-simple for young kids. Whenever you see a fire truck whiz by, or pass a favorite park or community swimming pool, ask your kids: “Who do you think pays for firefighters to help us?” or “Who pays for our swimming pool to stay clean and have lifeguards?”
The answer is “Us! Everyone who lives in our town helps pay for those great services and places. A little bit of the money we make from our job is automatically paid to our city/county/state. That money is called ‘taxes.’” (Now, don’t you feel a little bit better about paying taxes when you think of the money that way, too?)
Create a Family Tax
Financial expert Neale Godfrey, president and CEO of GreenStreet Commons, suggests a Family Tax as a hands-on way to help middle-school and older kids start understanding taxes. When you give your kids their allowances or pay them for extra chores, require that a small portion of the money (maybe 5%) be set aside in the Family Tax jar. You (the grownups) may want to add some funds to it, too.
Every few months, make a point of spending Family Tax money on something that benefits everyone in your tribe. One suggestion: A family pass to the pool, zoo or local science museum. The idea is to help your kids see that taxes do useful things.
Review Your Teen’s Paycheck
Once your kid starts working, taxes will quickly become a reality. They’ll undoubtedly wonder why they’re losing so much of their paychecks to taxes. At this point, Godfrey suggests explaining a bit more about tax brackets, Social Security withholding (FICA) and more. A few sites that might help: IRS Understanding Taxes and IRS Tax Form Simulations.
By the way, unless your teen is making a ton of money (check IRS Publication 929), you might want to help them fill out a W-4 form. That way, they can claim that they’re exempt from federal and local taxes (line 7). The result: your teen will be able keep more money from their paycheck and not have to wait for a tax refund in the spring.
However, your kids should fill out tax returns even if they don’t owe the government any money. Read more about At What Income Does a Minor Have to Fill Out an Income Tax Return?
(photo courtesy © Chris Potter cc2.0)
Teaching your kids about money might not be at the top of your Spring Break to-do list. However, if you think about, a spring break trip—or any vacation—is an ideal time to increase your child’s money IQ. Your family makes a lot of financial choices when you travel—from which daily activities you choose to how much money to spend on souvenirs.
Here are some great ways to use your Spring Break trip to give your kid hands-on lessons about money.
Give Vacation Cash Bonuses For A+ Behavior
You can always let your kid earn extra spending money for your trip by doing some extra chores ahead of time. However, have you considered any of these smart ideas for encouraging kids to earn—and be more pleasant humans—while you’re traveling? Consider giving kids an extra buck or two for:
- Trying a new food (bonus: it makes kids more enthusiastic about experimenting at a new restaurant instead of a familiar chain)
- Trying a new activity they might otherwise skip, from snorkeling to rollerblading
- Not squabbling with siblings on the plane or while you’re driving
- Being quiet for an hour in the afternoon while you rest (they can draw, read or quietly play on electronics)
- Doing a good deed, like opening a door for another hotel patron, or letting a younger child in front of them in line at an amusement park
And don’t worry—you’re not bribing your kids. When you bribe someone, you give them money to do something they shouldn’t. These payoffs are rewards: You’re giving your kids money for doing something right.
Establish a Souvenir Budget
Rather than listening to your kids beg for money every 15 minutes, give them a set amount of money upfront. If you have young kids, you may need to release their souvenir money to them every few days, so they don’t spend it all at once.
Give older kids an amount that has to last the entire trip. (If they want to bolster their fun allowance with the extra money they’ve saved, that’s fine.) To prevent teens from carrying a big wad of cash, consider loading their souvenir allowance onto a prepaid debit card, like Greenlight. Don’t refill the card once your teen spends their entire budget. When the money’s gone, it’s gone.
Let Teens Make Family Activity Choices
Some families give their teens an assigned trip day and budget, and let the kids decide the family’s schedule. This can be done ahead of time (if you’ll need to book advance tickets, for instance) or at the very beginning of your trip.
This exercise helps teens see that having a budget means making smart choices. For instance, would they rather spend the family’s entire daily budget on tickets to an indoor wave pool and a movie afterward (with a no-frills dinner back at the condo), or a less expensive activity that leaves money for a fun dinner out? Encourage your teens to look for coupons and other deals online.
Get Creative About Other Money Choices
Every family and kid is different. You may think of some family money rules that work especially well for your Spring Break trip. For instance,
- If you have a kid who constantly snacks: Try a “one purchase a day” rule—snack or souvenir. They get to choose between the two; they’ll never get both. (And if your kid is truly hungry, they’ll be happy to take the apple and nuts you pack with you!)
- If the trip is extra spendy: Tell kids well ahead of your next trip that they’ll need to save up birthday and holiday gift money to pay for souvenirs. You’ll pay for everything else.
- To discourage a spending frenzy: Offer your kids a match on any money they bring home from your trip unspent. This is a great incentive for kids to skip buying tchotchkes that will just end up gathering dust.
What money strategies have you used with your kids on Spring Break or another vacation? We’d love to hear from you.
(photo courtesy © Carissa Rogers cc2.0)
Are you as uncomfortable talking to your own kids about money as you would be talking to your in-laws about it? It almost seems so, judging from the results of T. Rowe Price’s Parents, Kids & Money survey. In that study, 71% of parents were some degree of reluctant to talk to their kids about financial matters.
Maybe you’re holding back from money chats with your kids because you’re not confident you’ll say the “right” thing. If that’s you, relax. Most kids’ money questions are simpler than you think, says Rachel Cruze, co-author of Smart Money, Smart Kids, with her dad, Dave Ramsey.
Here are some strategies for handling family money conversations with a bit less stress.
1. Care but don’t scare.
Aim to be as honest with your kids as you can be about money. Just don’t freak them out with too much adult detail. Money conversations, like all talks with your kids, need to be age appropriate, says Cruze.
Not only should you talk differently to a 14-year-old than a 4-year-old, “some kids are just more mature and can handle a more intricate money conversation,” says Cruze. “However, other kids are in different stages of development, and you shouldn’t feel you have to open every detail of your financial life to them.”
2. Avoid the phrase “We can’t afford it” unless it’s really true.
Case in point: When your child asks for that extra package of cookies or an unplanned toy while you’re at the store. You probably can afford the item, but you don’t choose to do so. The better answer, says Cruze, is: “That’s not in our budget right now. We didn’t plan for it.”
The lesson to your kid is that money is finite. If you’ve already allocated your money to groceries, it’s not available for extra toys. One other idea: “’No’ can actually be a complete sentence,” adds Cruze. “You’re the parent. You don’t always have to explain any further.”
3. If money suddenly gets tight, don’t lie.
Maybe one parent has been laid off. Or perhaps you’ve made a proactive choice for one parent to quit and stay home. If you try to hide the fact that you’ve slashed your budget, your kids will suspect that something is up anyway, says Cruze. Your better bet is to set clear expectations about how you’ll handle having less money coming in.
For instance, you might say, “Because Dad’s hours were cut at work, we’re only going to eat out every couple of weeks, instead of every Friday.” Or “To save money, we won’t be going to many movies at theatres for a while. Let’s see what great movies we can get from the library.”
4. If your child asks “Are we rich?” or “How much money do you make?”, dig deeper.
A great response is: “Why do you ask?” In most cases, your child probably isn’t asking to see your W-2 form. They might be scared. They could be wondering if your family is financially secure because a friend’s family recently had money problems. “Reassure your child that you’re always going to take good care of them, no matter how much money is coming in,” Cruze says.
You also can tell your child that pretty much anyone who lives in America is wealthy, compared to many people in other parts of the world, suggests Cruze. “To have a house, food and car is considered ‘rich’ by many people’s standards,” she says.
(photo courtesy © State Farm cc2.0)
Could you leave your young child alone in a room for a few minutes with a fluffy, sweet marshmallow…and trust him or her not to eat it until you get back? What if you promised a reward of a second marshmallow if your child waited? Could he or she do it?
Not entirely sure? You’re not alone. Self-control is a really tough task for kids—and most grownups, too, when sweets are involved!
The Famous Marshmallow Test
In the 1960s and ‘70s, a Stanford University researcher named Walter Mischel actually conducted a psychological experiment with kids and marshmallows (and some other treats). The Marshmallow Test became legendary. It’s been recreated and filmed many times. Mischel also recently released a book about his experiment and its implications.
The bottom line: Helping your child learn to “delay gratification” may be a key to helping them be financially successful. It may also help your kids in other parts of their lives—working to improve their grades, avoiding drugs, not overeating, etc.
Why the Wait?
Can your child give up something they really want right now in order to wait for something better down the road? For instance, can a young child skip buying candy today and save their money to buy an Xbox game in a month? Can teenagers occasionally skip having lattes with friends in order to save up for a car?
Financial experts like Beth Kobliner and Farnoosh Torabi and say absolutely yes. After all, when your kids are adults, the stakes will be higher. They may need to trade all sorts of day-to-day purchases so they can save for a vacation, house, retirement, etc.
4 Ways to Teach Kids to Wait
You can help teach kids financial patience—starting right now:
- Offer a modest allowance. Even if you can afford more, pay your child just a little less. Make sure they’ll always have to save up for a few weeks, or even months, for bigger purchases.
- Require waiting periods. Whenever your kids want to pay for an item or experience over $x (you set the limit)—even if they already have the money—make a rule that they have to wait. Have your child note the item on a family calendar and wait two weeks (or more for bigger buys). Hint: It also helps if you, the grownups, model this same behavior.
- Have older kids pitch in. Don’t automatically pay in full for your teen’s school trip to Disney Land or that new phone. Let your teen earn some of the money with a job or extra assigned chores at home. You’ll automatically build in some waiting time as your child works and saves.
- Be cautious about loans. Tempted to advance your child a few extra bucks when they’re short of money? Don’t do it. Let your kid save up or work more and wait. Particularly when kids are new to managing a bit of own money (even a small allowance), it’s good to set a family rule that you won’t loan money or pay allowances ahead of schedule.
Be clear that it’s not OK for your kids to borrow money from friends, either. You want your budding tycoons to realize that they should only buy things when they have enough of their own money in hand. Credit lessons can come later.
(photo courtesy © Ken Bosma cc2.0)
Savvy grandparents know the #1 secret to holiday giving: Money is the gift everyone loves.
Tucking a few fresh bills or a generous check into that holiday card is a surefire way to make grandkids light up. However, if this year’s grandparent gift was extremely generous, you may want to talk this month with your kids about how best to use their windfalls.
Help kids plan their purchases. Guiding your kids toward smart spending choices can help stretch their gift money. For instance, if Grandma and Grandpa gave your child enough green to buy a spendy gaming system, show your kids how to watch for sales or discounts before they shop. They might end up having enough money to buy an extra game, too.
You could also require your child to write down things they want to buy, then take a two-week “cooling off” period. If your kid still wants the item when their waiting time is up — and the purchase fits in with your family’s values and rules — you can greenlight the purchase.
Use money gifts to grow more green. Talk to your child about saving and investing that holiday money so it increases over time. The Consumer Financial Protection Bureau offers a few suggestions for teaching middle-school-aged kids about the power of compound interest. The Charles Schwab Foundation also suggests opening a custodial investment account if you’d like to help your child learn more about investing.
Make savings a habit. Some parents require their kids to put a small portion (say, 10%) of money gifts into a savings account. This routine is good practice for later, when your child has an earned income. By then, they’ll be well in the habit of tucking away a set percentage of their money for emergencies or planned, bigger purchases.
Chat with grandparents about future gifts. Do your child’s grandparents regularly dole out extremely generous financial gifts? If so, it’s perfectly OK to share your thoughts (respectfully) on how that money could be used.
For instance, could Grandma give a bit less in holiday cash and invest the rest in a 529 college savings plan for your child’s benefit? A study by Upromise (the savings arm of college loan provider Sallie Mae) found that 68% of all parents prefer that grandparents add cash to their kids’ college funds instead of giving other holiday gifts. Just be sure to talk with grandparents well before next year’s holiday season about how their gift funds can best help your family.
(photo courtesy © Ben Smith cc2.0)
Spending habits have shifted significantly over the last decade. High adoption of smartphones, social networking, tablets, and more are several reasons why people make less purchases in physical stores than ever. While you may have participated in this transition, your kids are growing up with online spending as the norm. Amazon, Hulu, Netflix, Ebay, and other services have made it as simple (and affordable) as possible for their customers to make online purchases rather than going to the store. With kids spending more than 1.6 hours a day online according to online safety provider Norton, it is critical that you set ground rules for your children to follow.
- No Purchases without Parental Approval
Regardless of how old your kids are, they should be comfortable talking with you about their online purchases. Setting a rule that they must check with you first for approval gives you an opportunity to verify that the website or app they are using is safe, and the purchase is appropriate. As your kids get older, you can relax this rule to teach your children about trust. For example, you could allow your kids to spend their allowance when they want online, provided they use websites you have pre-authorized.
- Approved Websites & Services
Sit down with your kids and walk them through which websites and services they are allowed to access, and which sites they should not be using. This can be supplemented by parental controls, but not every mobile device or PC has these capabilities or makes it simple to use. A spending card and app like Greenlight can simplify this process through its simple interface while teaching children about good money habits.
- Purchasing Amount Limits
Sit down with your kids and set strict limits on how much money they are allowed to spend online at any given time. Limiting how much your child can spend at one time or each month will significantly reduce the possibility of an unwanted purchase. Link this amount to your child’s allowance because you can review their spending monthly and teach them better money management skills.
- Category Limits
Much like a dollar restriction, select specific categories your kids are allowed to purchase from. For example, you may allow purchases related to gaming, clothes, and music, but restrict purchases to junk food, R-rated movies, and more. Several allowance systems allow you to set up categories for spending which could be used to enforce the restriction further.
- Time Limits
Whether your kids are using cell phones, tablets, or a computer, set specific time limits for how long they can spend on any of the devices. In addition to limiting access, set specific hours that they are allowed to have screen time. Your kids should learn when it is appropriate to use online devices, and occasions when it is not appropriate such as family time. A general rule of thumb is allowing a maximum of one to two hours per day with an online device after they have completed their homework. Establishing a cut off time is also important so your kids don’t impact their sleep schedule.
(photo courtesy © Lucélia Ribeiro cc2.0)