12 tips for teaching kids about finance

4097827.thbEric Tyson, author of “Personal Finance for Dummies, 6th Edition,” says that now is the perfect time to teach your children about finance.

“Kids are surprisingly aware of what’s going on in the world,” says Tyson, former columnist at the San Francisco Examiner and now an author and speaker. “And if they don’t know that times are a little bit tough, and that mom and dad are having to watch their spending, it’s time to tell them.”

Tyson offers a dozen tips.

1) Tell them the truth.

Kids are perceptive. Rather than let them wonder why mom and dad are working so much lately or constantly talking about money, explain on their level what’s going on in the family’s financial world.

“You can explain that … some changes will have to be made at home,” Tyson says, “For instance, they may have to understand that the holidays will be leaner this year, or that the annual ski trip may not happen. Helping them understand what it all means will lessen the anxiety they feel as a result of seeing their parents worrying over money.”

2) Explain how much things cost.

Give them a “money tour” of the house. Explain that hot water costs more than cold water, or that bumping up the heat means higher power bills. Pile up all the bills for the month and have them look at the amount on each one. Show them what the family’s cost of living is and reiterate the areas in which they can help reduce costs.

3) Realize that kids learn what they live.

You — mom and dad — are your children’s most influential teachers. When you ring up credit-card debt, take out exorbitant mortgages or car loans, and fail to save, that’s what your children come to see as normal.

4) De-program them.

Kids are bombarded with information about what things cost, whether it’s the fancy sports car they like or the wardrobe of their favorite athlete or actor, not to mention the 40,000 commercials that the American Academy of Pediatrics estimates the average American child sees each year. What they aren’t bombarded with is knowledge concerning how to manage money effectively. And while schools are increasingly incorporating money issues into the existing curriculum, the broader concepts of personal financial management still aren’t taught. Frightening though it may be, some schools rely on free “educational” materials from the likes of VISA and MasterCard.

“These credit-card titans provide materials that implicitly and explicitly support carrying consumer debt as a sound way to finance significant purchases and living expenses,” Tyson says. “Explain to your kids that such spending puts a lot of money directly into the credit card companies’ pockets, so of course they’re going to offer that advice…but that smart people don’t listen to it.”

5) An allowance is a great teaching tool.

A well-implemented allowance program can mimic many money matters that adults face every day. From recognizing the need to earn money to learning how to spend, save and invest their allowances, children can gain a solid financial footing from a young age.

“A great time to start is when your kids reach the 5-to-7 age range,” Tyson says. “Start them on some household chores, and explain to them that they will be paid for their work. I recommend paying 50 cents to $1 per year of age. So, for example, a 6-year-old child would earn between $3 and $6 per week.”

6) Start them saving and investing early.

After they start earning allowances, have your children save up to half toward long-term goals, such as college. As they accumulate more significant savings over time, you can introduce the concept of investing.

7) Reduce their exposure to ads.

Cut down on TV time. And when children are in front of the tube, have them watch prerecorded material.

“Explain to your kids that the point of advertising is to motivate consumers to buy the product by making it sound more wonderful or necessary than it really is,” Tyson says.

8) Find entertaining ways to teach good money habits.

For younger kids, Tyson recommends age-appropriate books like “The Berenstain Bears Get the Gimmies.” For late-elementary-school-aged kids, he recommends “Quest for the Pillars of Wealth,” by J.J. Pritchard, which teaches personal finance through an adventure story. You can also give them a subscription to “Zillions,” a kids’ magazine from the publishers of Consumer Reports, which covers money and buying topics.

“Another great opportunity … is through board games,” Tyson says. “Monopoly and Life are two games that are very effective at getting your kids to think about the best way to manage money and plan whether they should spend or save.”

9) Teach them how to shop wisely.

Family shopping trips are likely to be your kids’ first encounters with spending. Let them watch you use coupons. Have them pick out three pairs of shoes they like without looking at the prices, and then explain why they should buy the cheaper pair.

10) Introduce the right and wrong ways to use credit and debit cards.

Teach your children the difference between credit and debit cards. Explain that credit cards should be used sparingly, and then practice what you preach.

11) Encourage older kids to get a job.

They might do yard work for neighbors, offer baby-sitting services or deliver newspapers.

12) Spend time with your children — and not so much money on them.

“Often, all those unnecessary things we buy for ourselves and our kids are simply distractions from the people we love,” Tyson says. “They send the message that it’s necessary to spend a lot of money in order to have a good time. It’s not, of course. The best things in life — friends, family, quiet evenings at home just being together — really are free.”

— Tom Keyser, staff writer

Tracy Ormsbee