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A Penny Learned: 6 Ways to Teach Kids Financial Fundamentals

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115-homespun-web.jpgRISMEDIA, Jan. 25, 2008-(MCT)-Kids need early education in finances. Parents, regardless of whether you think New Year’s resolutions are poppycock or not, resolve this year to grow your child into a financially sound adult.

As uncomfortable as it may sound, that may mean teaching your minor to avoid making some of the same major mistakes you’ve made.

How many adults, for instance, can confess to charging unneeded purchases, spending beyond their means or not saving enough.

Recently, we asked some financially wise adults what monetary wisdom they would suggest parents pass along to their teens.

Here were some of their common-sense comments:

Save early, save often

Just as adults need to pay themselves first, children should, too, said Mary Thomas, director of education for Credit Counseling Centers of Oklahoma Inc. The sooner money is set aside and invested, the longer it has to grow through compounding.

When children are young, introduce them to the excitement of saving by giving them a piggy bank and then helping them open a savings account after it fills.

For older children or teens, offer to match every dollar they save up to a specific dollar amount. This will encourage them to save, while communicating the importance of saving, Thomas said.

Consider giving allowances based on a child’s age, she suggested. So, if a child is 14, that would mean giving her $14 weekly, every other week or monthly.

Allowances give parents leverage in that they can deduct from the amount if a child doesn’t perform his or her chores, or keep up good grades. They learn the importance of earning money for a job well done.

Having an allowance also helps them learn how to use the money, whether that means saving or spending it on movies, music, video games or clothing.

Allow them to make their own spending decisions — good or poor ones — and don’t succumb to their pleas for more if they spend it all before the next allowance payday. They’ll learn they can’t go running to Mom and Dad every time they run out of money, expecting more, Thomas said.

Distinguish needs versus wants

Teenage spending has risen from $122 billion per year to $172 billion per year over the past five years.

Since 2001, teenagers have been spending more than $104 a week, said Thomas, citing information from Teenage Marketing Unlimited.

When a teen keeps hounding you for a new iPod, approach it as an opportunity to talk about the differences between needs and wants, Thomas said. If Johnny already has an iPod but just wants an updated version, ask him what’s wrong with his old one and what he’s going to do with it if he buys a new model.

Encourage your child to research, ask questions and find out when an item is going on sale. Teach them also to evaluate TV, radio and magazine ads.

Buying a car is a big deal for a lot of teens and presents a prime opportunity to teach children about saving, costs and comparative shopping, said Charlotte Richert, family and consumer sciences educator for the Oklahoma State University Extension Service in Tulsa County.

Parents can talk about the costs of owning a car, repairs, insurance, maintenance, etc. Investigate makes and models with your teen by perusing Consumer Reports or other reputable publications, Richert said.

Teach money’s value

Take teens on regular shopping trips, even if it’s to the grocery story, and have them watch you pay bills.

Show them how much money you have set aside to spend and let them see what it’s spent on.

Thomas suggests regularly scheduling discussions about finances. Talk to your teen about money while in the car or at the dinner table. Ask them how their savings plan is going or what they plan to spend their money on next.

“Be a good example. Children do emulate what they see you do,” she said.

Involve teens in bill paying. Have them sit down and watch you pay the bills either by check or online, so they can see exactly how much it costs to live, suggested Belynda Clanton, vice president of pro<< grams for Junior Achievement of Eastern Oklahoma Inc.

Set a budget, and stick with it

Have teens track earnings and expenses. How much do they spend weekly on gasoline, entertainment with friends, clothing, school activities? Track those expenses for a month, or even two weeks, Richert said.

They can record expenses on a computer program or in a spiral notebook by dividing expenses into sections (i.e. entertainment, clothing, car expenses, etc.).

Teach the dangers of credit cards

In today’s “plastic age,” many people don’t associate credit or debit cards with real money, Richert said. She encourages teens to pay with cash so they actually see that money leaving their purse or wallet.

“Credit is a huge drain on families and in our society,” she said. “Make sure they understand that you don’t buy what you can’t pay for when the bill is due.”

Teens need to understand that a credit card is a loan with interest, and if they have a loan, they’re in debt, Clanton said.

“A lot of times they don’t get that,” she said. “That cloud of debt that hangs over your head can affect your future credit. It can affect even your physical health, and it certainly can affect relationships.”

While clothes shopping, help your teen calculate the cost of buying a $40 pair of jeans with cash versus a credit card that carries finance fees and nearly 20% interest. That $40 pair of jeans could end up doubling or tripling in cost if the charge isn’t paid off for several months, Clanton explained.

“If you don’t have a full-time job, working 12 months out of year, you don’t have any business with a credit card,” Thomas said. “If you don’t pay like you have agreed, it will mess up your credit for the rest of your life.”

Poor credit affects every aspect of a person’s life, whether it’s buying goods or services, housing or employment and insurance, she added.

Prepare for college scholarships early

Education is one of the best ways of assuring financial well-being in adulthood.

Students who plan to attend college should start thinking about applying for scholarships before their senior year, Richert recommends. She suggests that freshmen or sophomores schedule a meeting with a high school counselor who handles scholarships and career development.

Students should consider their college goals and what it will take financially to get there. To qualify for some scholarships, students might need to be involved in leadership roles, athletics or organizations.

“It takes some time. . . . It’s almost like a part-time job,” Richert said.

She suggests that students keep track of their high school involvements — including any community service, awards or club memberships — and refer to it when filling out scholarships applications.

Copyright © 2008, Tulsa World, Okla.
Distributed by McClatchy-Tribune Information Services.

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