September 2012

Financial Lessons For Children

[Reprinted and edited with permission from author Thayer Willis, MA, LCSW, and her upcoming book Beyond Gold: Real Wealth for Inheritors.]

Parenting kids successfully is a perennially favorite topic. Use these ten financial lessons to teach your children financial literacy. Not only will you be teaching them valuable information, you'll also be building a bond between you and your children. They'll know they can trust you to provide them with positive learning experiences, and you'll know they'll be ready to handle their own finances or inheritances when the time comes. These lessons are best imparted in age-appropriate steps. I'll provide general age guidelines, but every child is different. Use your judgment. Keep in mind, too, that all these lessons are applicable as children grow older. Even if your children are teenagers or young adults, it's never too late to build financial literacy.

1. Save (beginning at age 5-7): Thomas J. Stanley and William D. Danko's book The Millionaire Next Door emphasizes that it is important to save money because it is an attitude that will support the behaviors that support effective stewardship. If I allow my children to grow up as spendthrifts, in thirty or forty years, there will be no family fortune. However, if I impart to them the importance of saving and investing, their assets are more likely to grow.

2. Keep a Ledger (age 6-7): Provide your children with an old-fashioned ledger book to record all the money (allowance, earnings, gifts) that comes into and goes out of their lives. You'll need to set this up and assist them at first. The process of writing every amount down and seeing how much money is left after taking some out teaches the value of a dollar. This can progress to more sophisticated steps, such as a checking account or even a credit card to be paid in full every month. All of these practices will help your children develop good habits and learn to handle a budget well. By this age most children are handling some money coming in - whether from an allowance or just birthday cash. Work with them to designate some of that money for giving, some for saving, and some for spending.

3. Earn Money (age 7-8): Working can be a great experience, and sometimes, scary stuff can happen. Your nine year old daughter might be doing yard work for a neighbor who asks her to do something she doesn't know how to do, and she might feel afraid to tell him, lest she lose the job. Making it through such challenges is one of the key ways young family members will mature. Most of us look back on our own early jobs and view such experiences as valuable, so I encourage you to require young people in your family to work.

4. Deferred Spending (age 8-10): It is very tempting as parents to grant the wishes of our children - whether for an ice cream cone, new shoes, or going to a concert. When I hear parents (and grandparents) complain that children today are "entitled," my advice is to model and teach deferred gratification. You can insist that your children earn half of the cost of a big ticket item they want as a way to begin learning how good it feels to set a goal and achieve it.  Or you can put a special item on layaway and let your child make small payments each month from their allowance.  In our culture of immediate access and fast-paced delivery, the ability to develop patience and deferred gratification is a tremendous skill for your children to have.
5. Develop Community Service (age 8-10): There are many ways to cultivate community service in your children’s lives.  You can raise money for causes that you care about, sign up with your children to work in a soup kitchen, volunteer to help clean up a park, work together building a house for Habitat for Humanity, or many other worthy choices.  There is tremendous value in doing community service together, as a family.  It will help your children gain perspective on what is truly important in life.  If you believe that happiness comes from within, and if you recognize that the mainstream in our culture promotes happiness coming from without, the clash is obvious. It is up to you to take the initiative to help your children develop the healthy perspective.

6.  No Debt (age 10-12): This is perhaps the most important lesson, and it would be wise to teach it to your children as early as you think they can understand it.  Debt can be a big problem in any family, especially if children have not become responsible with how they handle money.  Ideally, families should carry no credit card debt and base their lifestyle choices on what they can afford in the present.  You would be doing your children a huge favor by modeling this behavior and teaching them to do the same.  You can explain to them that if you are living on the money that you actually have, then your lifestyle is true and you are living within your means.

7. Become a Choosy Consumer (age 10-12): Teach your kids to be smart shoppers.  When you go shopping, you can find one of those short-sleeved polo shirts at a large-volume store for $20.  Or you can find the same shirt, possibly made in the same factory, but with a little emblem on the front at a high- end store for $80.  Ask your teens if they think it’s worth the extra cost to pay the premium for the little emblem.  Ask them what they could buy with the extra $60.  Exemplify and cultivate a grateful spirit.  Help your children appreciate that along with privilege comes responsibility to make wise financial decisions.

8. Invest (age 10-12): You can start to teach your children about investing at about age ten, though it may make sense to wait to invest in public offerings until age 16 or so.  Let them read about a company they are familiar with (Apple, Disney, Coca-Cola?), buy a few shares and get the annual reports.  Or, they might want to start a business.  Teach them how this is different from just saving.

9. Be Authentic (age 13 and up): Exemplify your values and be yourself.  Be real.  This is a great lesson for teenagers, most of whom are busy trying to figure out who they are.  When teens notice you being confident in who you are in the world, especially when your actions fall outside the mainstream, it’s a powerful model for young people.

10. Be a Leader (age 13-15): Last but not least, teach your children that very few, if any, of their friends will handle money in the ways this list suggests.  Leaders are people who withstand peer pressure and stay true to their values.  When this authenticity shines through, others will notice and follow their example.  Learning these steps of financial literacy will set your family members apart from their peers.  Most other young people will not learn to manage their financial lives in these responsible ways.  So when their peers are submitting credit card applications for “free money,” yours will understand the folly of this course of action.  For them, the process of practicing financial literacy and responsibility will minimize temptations and entitlement.

Upcoming Workshops

Continuing on the theme of Financial Literacy, you and your friends are invited to the next Silver Oak Investment Boot Camp to be held Saturday November 3, 2012

Seating is limited; please RSVP to Linda at (503) 242-1715 or register on our website.

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