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Monday, May 30, 2016

Making your children financially aware

Monday, September 27, 2010

Brian Pershing
Many parents get nervous about teaching their children how to be financially astute.

Maybe parents are apprehensive about finances themselves or maybe they just don't know how to go about teaching it.

The fact is that there is no one right way to share financial know-how with our children. Carving out time to discuss financial issues with children is more important than the method you use to address the issues.

Instead of doing this in a lecture format, try asking them questions to see how your children attempt to answer the questions on their own. Over time their responses will come with less difficulty and will become more meaningful.

As I've worked with families over the years many parents have shared with me things that have worked for them as they've taught their children about money. I'll share some of these ideas as a way to spur your own thoughts about how and what to share with your children.

First consider teaching them the value of money. While entire books have been dedicated to this subject, look for opportunities to illustrate the value of money using simple comparisons.

Provide a chore-based allowance for tasks like sweeping the kitchen floor or caring for the family pet. Then, as they contemplate ways to spend their proceeds, ask them to think about questions like "How many weeks of caring for the cat does that purchase add up to?" or, "If you wait five more weeks, what could you afford to buy then?"

In order to implement this type of learning tool, you might have to decrease the family's direct spending for toys, video games, and other children's items in order to afford paying the allowance.

As they get older, you could increase their allowance opportunities while transferring other children's budget items to them like clothing, communications and entertainment.

The main idea here is that if your family is already spending

the money in these areas you can turn the expenses into learning tools for your children.

Think about teaching your children how to spend money with limited resources. If you are taking a family vacation or a camping trip allow the children to take part in setting a budget for areas like lodging, meals, gas, shopping, supplies and attractions. Then help them track the expenses to see if your family can come in under budget.

Be prepared to be rigid to the budget in some of the areas like "shopping" in order to teach them one of the most powerful financial words of all time: "no." In that moment, if they learn that funds are truly limited, you have traded a temporary sadness for long-term financial happiness.

In our practice, we have seen very little correlation between how much someone earns versus whether or not they can operate within their income. If you can work with your children now to understand that resources are limited, their future earning power will not dictate the success of their financial stewardship.

I've seen a lot of differing views about the use of borrowing. Some families rely heavily on it, while others refuse to borrow. Others approve of it for certain purchases like a home or automobile.

Regardless of your view, start sharing with your children what you believe to be the advantages and pitfalls of borrowing now.

For instance, if you approve of borrowing against a known future income, you may want to upfront cash to allow your child to make a purchase. In this case, agree from what source the child will pay you back (if it is unknown, resort to the powerful "no.")

And, most importantly, actually collect the cash at payment time! I think that most parents would agree it is best not to teach your children to impulse buy through borrowing. Instead, help them plan ahead.

For instance, if the future purchase is a laptop computer, you may suggest that they hold off until they have saved one third of the purchase. Then, you could help them make the purchase if they will pay you back over an agreed-upon time.

If you would have been willing to make the purchase anyway, then you can also be creative in providing a way for your child to earn the money to payback.

Start teaching your children the habit of saving money now. While the above examples help children learn the keys of short-term purpose-driven saving, it is also very helpful to teach them to learn a consistent, long-term savings pattern.

The concept of this type of saving is that it is available in the future for an unknown emergency or rainy day fund. I suggest using a specific percentage like 10 percent of any inflows.

During their childhood, putting back a small portion of cash inflows becomes "normal" for your son or daughter. Then, after several years, they will witness the results of how a small contribution plan can accumulate.

This technique also works in instilling a habit of charitable giving for your child. While teaching children to put money back, encourage them to open a bank deposit account.

Permit your child to physically make their deposits at the bank. This will help familiarize your child with banking and making banking transactions. Therefore, banking will not be foreign to them as they enter early adulthood.