By Gregory Keer
Growing up in a southeast Los Angeles neighborhood, Alicia Mendiola and her siblings were raised in a household where frugality ruled. Her parents, Mexican immigrants, didn’t have much money and knew that living within their means meant a brighter future for their large family.
“My father had pride in having perfect credit and never bought what he could not afford,” says Mendiola. “Fast-food was a luxury. Everyone took turns getting new shoes, and sometimes your turn never came up. After years of living in housing projects, my father bought us a home because he had good credit.”
Mendiola learned from her parents’ attitude towards money. The single mother struggled to put herself through college and support her daughter, Irene. But today Mendiola is an assistant professor of child development at East Los Angeles College and owns a condominium in Pasadena. Despite the temptation of easy credit, Mendiola never got into debt.
Mendiola taught her own daughter the same lesson. Once Irene entered college, Mendiola gave her daughter a fixed amount of money to spend. The budget taught her daughter how to “prioritize her purchases,” she says.
According to recent surveys of American families, many kids growing up are getting themselves into debt before the age of 21. It seems the lessons that Alicia Mendiola learned about money while growing up aren’t the ones being passed on by parents these days.
“I had one father come to me who’s the president of a private bank and say it was easier to feed the tiger, to just give his daughter money, than to try to teach her how to manage it,” says Joline Godfrey, author of Raising Financially Fit Kids and a clinical social worker.
While too many children are not being instructed at home about wise ways to handle money, businesses are eager to take up the slack. As parents put more and more shopping cash into the hands of younger and younger children, businesses are targeting kids as young as 8. Last year, Visa announced a Hilary Duff Visa card, which can be used like a debit card. The Web site for the card, which bears the image of the teen actress, urges visitors to use the card because “cash is so yesterday.” Why target the pre-teens, such as Duff fans? In the U.S., children between the ages of 8 and 14 control 39 billion shopping dollars and influence billions more in purchases, according to a 2003 report from Market-Research.com. Entire conferences are organized around the goal of teaching businesses to build brand awareness in tweens.
“Children are prey,” Godfrey says. “Marketers know it’s more efficient to go after children who can nag their parents into buying things for them.”
Obviously, parents can’t lay the entire blame on those in business to make money. Godfrey says in addition to corporate marketing, spending habits are influenced by children’s fast-paced days that make it difficult to analyze purchases, peers, and “magical thinking,” in which money seems to just “appear” from ATMs and parents’ pockets without a concrete trail of where it really comes from.
Just as parents need to educate their children about such topics as healthy eating and the value of school, financial industry experts say lessons about money should be added to the list. Parents don’t need to be stock-market whizzes to teach such basic money lessons, experts say, and the goal is not to create junior MBAs.
“All parents have to do is lay the seeds,” says Godfrey, who founded Independent Means, an organization that teaches children how to manage money. “It’s the parents who do nothing that will have issues later. Doing something trumps doing nothing.”
To teach a child about money management, parents should consider the fundamental goals they are trying to teach. In her book, Godfrey categorizes the lessons into “The Ten Basic Money Skills”:
1. How to save
2. How to keep track of money
3. How to get paid what you are worth
4. How to spend money wisely
5. How to talk about money
6. How to live on a budget
7. How to invest
8. How to exercise the entrepreneurial spirit
9. How to handle credit
10. How to use money to change the world
A child with a good understanding of these basic skills and a history of discussing money management is better prepared to tackle an issue that will have a critical impact on their adult life. Godfrey also categorizes a person’s financial life by dividing it into five stages: Apprenticeship (5-18), Starting Out (19-30), Taking Charge (31-50), Looking Ahead (51-65), and Third Wave (66 ).
In the first stage, when parents still hold the greatest influence, children should “develop a financial vocabulary; establish early financial habits; and practice saving, earning, and philanthropy.”
Even if a parent doesn’t start talking about money until a child is in her teens, such lessons are still worthwhile, Godfrey says. “It’s developmental, not chronological. You can treat your 15-year-old as a 5- to 8-year-old, teaching them the basic knowledge of financial literacy. It’s like learning a new language.”
If a parent chooses not to take up the issue of money with their child, lessons – not necessarily the right ones – are still being learned in the home, financial experts say. “Kids mimic how parents handle money and listen very carefully to what they say about it,” says Eric Sussman, a lecturer at UCLA’s Anderson Graduate School of Management and president of Amber Capital in West Los Angeles.
Easy as 1,2,3
These lessons can be as simple as making a point of letting your children watch you handle money issues. Sussman’s three children, ages 3, 6, and 9, watch as he and his wife sit at the kitchen table clipping coupons and comparing prices of potential purchases.
Kids can even learn from little things like turning off the lights in rooms you are not using. The lesson happens on the spot when children ask why the lights need to be turned off, Sussman says. A parent who responds by explaining that electricity costs money teaches the consequences of leaving lights on.
When Sussman’s oldest son was 6 years old, Sussman changed the TV channel from the cartoon program the child was watching to CNBC to check the stock ticker. Feeling guilty about the switch, Sussman explained the stock reports. As his son watched graphs and numbers go by on the screen, Sussman told him, “See the green and red colors? Green is good. Red is bad.” Simple words, but ones that are effective for a 6-year-old.
“You should put things at their level,” Sussman says. “If you want to explain stocks, Disney would make a better example than Cisco. If you or your child happens to have a share of Disney, then the next time you visit Disneyland, you can tell them ‘you own part of an amusement park’.”
Money is often a difficult concept to make concrete in this day of online banking, credit and debit cards. A smart way to make the payment for such purchases, which to a child might appear cost-free, is to show the child the bill. “You can show your child the credit card statement, point out an item, and say, ‘Remember when we bought that ice cream at the market?’,” says Sussman.
“You can then pull out your checkbook and show your child how you write a check to pay for that ice cream,” says Sussman. “Even if your child doesn’t grasp it at first, it doesn’t matter. It will take time and it’s worth it.”
David Paller, a certified financial planner and vice president with Robert Osher Investment Management in Pasadena, agrees that young children should be shown a road map of how money travels from place to place. Paller, who counsels families about financial security, says kids can handle a little talk about money when they’re as young as 5 or 6.
“The next time your child says, ‘I want that,’ explain to them, ‘That thing actually costs money,’ ” Paller suggests. “You can then ask them, ‘Do you know where money comes from? How do you think it gets into my pocket? I go to work and I make money.’ Your child will listen because it’s about them and what they want.” Paller says children can often understand complicated subjects, even an explanation of taxes.
Children also need to learn that their parents cannot (or will not) buy them any and every dazzling toy, trendy junk food or must-have video game. If children are given their own money to spend, they should understand the idea of premeditated choice.
Parents can illustrate this point by telling their children that if they decide they want to buy a lot of little items now, they won’t be able to get a big-ticket item, such as a bike, for their upcoming birthday.
“The worst mistake a parent can make about money education is to not teach them about choices,” Paller says.
These lessons are not only about giving children a head start in learning to handle their personal finances. Such teachings also instruct children on behaving responsibly.
“This is a chance to explain how spending money relates to having responsibility for one’s own actions,” says Paller. “Parents should teach kids about money the same way they teach them about taking care of pets.”
The Allowance Question
Nothing teaches children more quickly about the value of money than giving them their own pot of cash to draw from. Parents can start giving a child an allowance as payment for simple chores such as keeping their room clean as early as age 6. Until about the age of 9, kids should get about $1 per week in allowance. When a child reaches 9 or 10, try $5 per week for more involved jobs such as washing the cars or mowing the lawn.
“It’s OK to give children a financial reward for doing certain tasks that require them to be responsible because that’s the way the world works,” Paller says.
At 9 or 10, a child can also be made responsible for buying the toys they want or paying for entertainment. Between 7 and 9, children are old enough to understand the concept of bank saving accounts. “When they’re in their tweens, they can even start to invest in stocks and mutual funds to understand the value of earning interest,” Paller points out.
Moving beyond earning an allowance and saving money can happen between the ages of 13 to 15, says author Godfrey. A young teen can earn money outside of household chores, even initiating small ventures, such as a tutoring service or raking leaves for the neighbors.
When a teen turns 16, she should be able to consider taking a part-time job. Before agreeing to the teen’s job, both parents and the job holder should ask themselves questions such as whether the hours allow enough sleep, safety and consider the value of the skills being learned on the job.
“The value of early experiences in getting and keeping a job and managing earned money are valuable enough that, within a reasonable set of guidelines, I highly encourage teens to work –
particularly during the summer months,” Godfrey says.
It's Not All for Me?
A tough fiscal concept to teach children about is the idea of philanthropy. Giving money away, as most people know, doesn’t have to mean funding an auditorium at the local university. Kids need to be told that money can be used to accomplish something other than buying goods or entertainment for oneself.
“Children need to see the importance of giving and the responsibility of being part of a larger world,” Paller says.
For younger children, the act of charity might be difficult to understand. To help children grasp the idea, Paller suggests that parents find tangible ways to give and point this out to the child. For example, a parent and child can fill up a frequent-buyer card at a local sandwich shop, then give a homeless person the card that is good for a free sandwich.
In her book, Godfrey spells out other ways to help kids make the connection in doing greater good with money. They include the offers to match a donation to a cause a child chooses if he can explain why the cause is important.
Caring about the world and caring about money are lessons parents have the power to teach their children. While personal finances cause most adults much stress, educating their own kids at a young age will help these children grow up to be less anxious and more financially secure adults.
“Financial literacy is economic self-defense,” Godfrey says. “Those who learn the most will be the safest.”
Independent Means – Joline Godfrey offers information on her summer programs and helps parents and kids stay financially fit with a newsletter of monthly tips.
Jump$tart Coalition for Personal Financial Literacy – The California Jump$tart Coalition, part of a national organization based in >Washington>, >D.C.>, is committed to helping solve the problem of financial irresponsibility through education. The coalition works with schools, in classes from kindergarten to 12th grade, to help students understand the value of money. In California, Jump$tart is teaching personal finance to teachers, lobbying policy-makers to include more financial education in school curriculum, and has created a Web page that links finance issues to California math standards>
The Everything Kids’ Money Book: From Saving to Spending to Investing – Learn All About Money! (Everything Kids Series), >by Diane Mayr (Adams Media Corporation, 2002). Kids 9 to 12 will actually enjoy learning about the basics of money with this light-touch volume.
The Totally Awesome Money Book for Kids (And Their Parents),> by Adriane G. Berg and Arthur Berg Bochner (Newmarket Press, 1993). This award-winning book is geared to the 10 to 18-year old crowd as it teaches the fundamentals of saving, investing, and working, among other essentials about money.
Raising Financially Fit Kids,> by Joline Godfrey (Ten Speed Press, 2003) – A parent’s guide to raising financially sophisticated children, from the founder and CEO of the leading provider of financial programs for kids and parents.
Web Sites and Products
FleetKids – Many local banks offer coloring books and information to help kids understand what it is to set up a savings or checking account. But this site from FleetBoston has nifty games and other interactive tools related to money education.
Moonjar – This money-allocation tool for children hails from Seattle. Kids are taught the Moonjar fundamentals of spending, saving and sharing by collecting funds in a colorful money-box that can be ordered online. The site also has information and resources on how to teach kids about money.
Prosperity4Kids – Agoura Hills mom and entrepreneur Lori Mackey has created several products around her Money Mama Piggy Bank™, which helps kids learn how to allocate their money.