Best way to educate children on money.

[Lonewolf]

Just wanted to get some feedback from this board, as I've seen many good tips in the past. With my little ones 20 months and 2 months, I've already have them started on the 529 plans, but they have also received a decent amount of bonds for birthdays, etc.

I've let all family know the 529 plan is an option, and some have chosen that route, and others have given cash, which I've deposited in a local brick and mortar bank for now (not talking large sums).

I think there is value in having the brick and mortar type banks so they can maintain thier on accounts like I remember doing as a kid, but is it worth selling the bonds and putting them in better investment vehicles? How do you work with them to understand other savings options other then the typical bank account.

Any advice would be appreciated.

Wolf

[tinapbeana]

if it were me, i'd keep the savings as is and then work on the value of money with your kids. there's an episode of "king of the hill" where the 12 year old boy basically thinks a pair of shorts and something absurd like a day's worth of pay have the same value! i know it's an extreme example, but i feel once children understand what money is actually worth they can start to understand why you would chose one investment medium (say a savings account) over another (say a piggy bank).

with that said, perhaps your children would benefit from a online savings account linked to your checking account. they could see their balance and what their money grow, and any cash or check gifts could be deposited in your account and swept into the appropriate savings account.

[JanH]

Tina: That reminds me of some crazy papers the kids had in elementary school. One was estimating the value of items. One was estimating the cost of a sweater. I thought that there couldn't be a wrong answer--it depended on your family. One family could buy the sweater at a thrift store and the child would think sweaters were a low price. One could buy at a sale in department store and be another price. One could buy at Neiman Marcus and the child would think another price. I don't think too many kids got the price of the car right. They didn't have too much experience in car buying. Now, I would teach my kids as I went along.....

[disneysteve]

I think the best way to educate your kids about responsible money management is by example. Explain why you buy what you buy, why you shop certain places, why you buy in bulk, clip coupons, do without certain items. Explain how checks work, and credit cards and debit cards. Explain what happens when you go to the ATM and where that money comes from. Explain what work needed to be done to get that paycheck you bring home. Let them watch you balance the checkbook and pay the bills and see how much it costs to run a household. Teach them about investing by showing them what you do. Teach them about common scams and how to avoid them. Use an online calculator to teach them the dangers of not paying a credit card bill in full each month and that if they can't afford what they're buying, they shouldn't buy it.

I've had an ongoing series of lessons with my daughter who is 11 now and she is quite well versed on personal finance issues, probably better than many adults. By the time we send her off to college, I think I'll feel pretty safe that she won't be racking up huge credit card bills. She's been balancing our checkbook for a couple of years already.

As for her money, she has an account at the Bank of Dad. I started it with her a couple of years ago. I maintain her account and paid her interest of 5%/month. Kids need to see growth to understand it and you just can't do that when banks are paying 0.5%/year. As her balance increased and she understood compounding, I lowered the rate to 3% and will lower it again shortly. She actually wants to get her own real account now even though she understands the interest will be much lower. I'll probably open an online account for her.

[vishenda]

It may be a little early for them to understand the value of money... The banks in America offer next to nothing for interest... bonds will yield a larger return for your dollar.. Put some money in an index fund of some sort.. the REIT market has been really hot for the last few years... if you are looking for no risk but minimally larger returns than a bank stick with the bonds... CDs are also another safe investment if the money wont be touched for a few years... I see little need to explain other options to them until they are looking at getting out on their own. It is hard enough for kids to understand money and how to save. As a kid my parents gave us each an allowance every week from birth. Part of it went into the bank. Part went to us when we were old enough. If we wanted something, we had to save our money for it. As this took weeks or months, we quickly learned the value of money and working for it.
Cheerleading camp? You have to help me clean out the garage for two weekends. This shows that getting money and things you want requires hard work. This is clearly something most kids do not learn these days.

Just focus on the simple concepts until HS at least. You'll be busy with teaching them lots of other things, too.

[disneysteve]

Originally Posted by vishenda

focus on the simple concepts until HS at least.

Personally, I think HS is too late to start teaching kids about credit cards and debt. Once kids have an understanding of basic math, multiplication, etc., you can teach them about compound interest, both from the savings side (when you earn the compound interest) and on the credit side (when you are paying the compound interest). My daughter was 10 when we had the credit card lesson. She was shocked by how much it would cost and how long it would take to pay off a credit card bill just making the minimum payment. That lesson really made an impression. She's mentioned it numerous times when something came up in conversation, so I know she understood.

[Joan.of.the.Arch]

I agree with disneysteve that it is best to just talk to them about money as an ordinary daily matter. If you buy the 98 cent a pound apples instead of the $1.10 a pound apples explain why. If you buy the more expensive ones, explain why so that it is clear that not every decison is only about spending the least amount of money. If you pay your bills online, tell them how that works. If you used to do it by check or in person, tell them why. If there is something you would personally really like to own but choose not to buy it because of money, explain that. Tell them how much moeny you earn, how you get paid, how you plan to spend the paycheck. Tell them about how you do not expect to work when you are very old and they are grown-ups themselves. Tell them how that can happen. There are just a zillion things to let your kids in on.

Big formal lectures on money topics probably won't be necessary. You just talk at what ever level they are at, just like you do for any other topic in life.

[Lonewolf]

By no means was I starting the banking conversation yet with a 20 month old (no matter how gifted I think she is )

I was just checking the pulse on what people have done, or what people would do now based on what they have learned over the years.

I agree the bonds don't make that much interest, but just want to make sure that somehow whatever investment vehicle I cash them into that one day my children will be able to connect with it and watch it grow. Plus I didn't know if it’s insulting to people who gave the bonds and I sell them and throw them into a mutual fund for example.

Again, at their ages, its small dollars, if the amounts get sizeable, I will defiantly consider moving to something similar to ING and connect the brick and mortar bank.

Thanks for the input so far!

Wolf

[Snoopy2645]

Well we having savings & all of that for our girls but how I personally have educated them is by showing them my middle dd knew very young what a free coupon was just by watching me in action & she knows all about rummage sales I know she appreciates money way more than her older sis who I worked ft when she was younger so I had more to spend on her. As my younger 2 were born & I didnt work I had to become way more frugal & they are growing up seeing that

[Langlo Family]

Wow, such great examples. My daughter is only 4 months old, but I have always planned to use the Bank of Dad theory. I have also started collecting all my change for my daughter and put it away into a big jar. When she gets old enough to start counting, I will have her count out her change as practice. Then from there, that will be her money. I will also be giving her an allowance. Once I give her money though, I will allow her to make the decision to spend it, or save it in the Bank of dad for a future purchase while it's gaining interest. She will soon learn the advantages of saving, rather than spending.

[Diolla]

My son got an allowance until he started HS, he also crushed cans to take to the recycling center and odd jobs to raise money. He has saved some of it to buy things he wanted by putting aside some of what he earned.

Now that he is in HS I give him the amount I would spend on him and he budgets it for his lunches, bus pass, tutor and extras. I also pay him for extra work he does around the house and he gets bonuses for doing well at his primary job (school).

We have always talked about saving and spending wisely and I still remember the ATM talk when I explained that it was my money that the bank was just keeping safe for me until I needed it.

I think he will do okay.

[PrincessPerky]

Well the tit;le sound like education, the post sounds like what to do with kids money.

I have no idea on what to do with the money, but education wise, I'll repeat what others have said (some things are worth repeating!)

Don't wait!!!! do it now!

start with values of coins (yes even with the 20 month old)..and cost of stuff..no big on details, start with it does cost..cost to turn a light on, costs to buy food, why do we go to work? (for money to buy stuff, like food and utilities..lights, heat, water)

Move on to details, like how to buy simple things..set up a fake store to buy homemade toys (form duplos or linking cubes, or drawn on paper.) start with prices like '1 cent' (a penny) or 10 cents (a dime) move on to 4 cents (4 pennys) and 40 cents (4 dimes)

then move on to buying with combinations (44 cents) and larger coins (75cents)

then move on to bills and coins..then you can finally buy in a real store..if you want em to.

Make sure while letting them buy fake stuff, you mention real stuff costs more. but not as much fun.

get some fake coins or use real ones..I prefer real ones..they look real but if you don't want 20$ in loose change around use fake ones.

And then ..you guessed it..move on

My whole teaching phylosophy is to add to what a kid knows..no matter where they are, they can learn something....and then they can learn more...and more....

Allowence is a hottly debated subject, I don't approve of money for nothing, and I don't approve of money for normal house chores..no one pays me to do the dishes..but I do see having money as a nice way to learn how to budget it..I think additional chores could be paid for (but not just well extra work cause gma is comming..I have extra too,a nd if you want to see gma, youll help..no ifs ands or buts...)

Personally my kids get an erratic gift cash, I see no need to add to it right now.

Make money a part of daily conversation, like reading, and math...(you do talk about having to read the recipie, or read the books at the library..and about how many crakers you hand out? or how many diapers you changed in a day..right?) They will start to show you they know information (k bit of a wait on the 2 month old .) and then you can start to add to it.

Oh yeah, if you go to hurch and or donate..TELL them! and tell them why....

[Lonewolf]

Princess Perky,

Thanks for the input! I guess I'm trying to kill two birds with one stone. Ideas around the education are probably the main reason for the post. My little lady does have a little toy piggy bank with coins, so I guess no good time like the present to start introducing how those coins connect to something else.

Allowance is an interesting question. I guess when I grew up it was definitely 1.50 a week based on doing chores that week. I'm betting that won't work today

I appreciate all the ideas, thanks to all for your input. Guess I'm not a lonewolf anymore since wolfrage entered the board

Wolf

[pretty cheap jewelry]

When my husband was little the grocery store used to give the coins back from coupones instead of just deducting the amount. His mom used to let him cut the coupons and keep the coins.

This was a major life lesson and impressed him. To this day, we are credit card debt free, he is a budget wizard. We have two real estate properties, major retirement savings, and many luxuries to prove it.

The moral? Get your kids to cut the coupons for grocery items and let them keep the coins.

[LivingAlmostLarge]

I recall an allowance paid regularly, working for extra money at home, having a savings account, then checking very young and being paid that I had to pay for all my school clothes within my clothing budget. Then I had to shop all year and think about it (tough for a girl okay), and then CC to use and get a handle about what it meant to not spend a check or cash. Turns out it worked out better than expected.

Wish though my mom had turned me on investing instead like DH at 12 into MF. But the two of us did okay, we had enough saved to buy a home at 21 and 23 in Sunny So. CA (gee 6 years ago), pay for two new cars, and never have CC debt. And we're just starting on building a nice retirement portfolio. Mostly we just learned early that CC are NOT free money, and saving for retirement is a necessity. First real job we had retirement contributions were maxed out and all other accounts too!