A few years ago, in early December, a group of us at work were chatting about how much to spend on Christmas presents for our kids. I had one very young child at the time. I asked my boss if his teenagers had high-dollar expectations. He rolled his eyes, and said, “My kids expect me to pay them to get out of bed in the morning at this point.”
We all laughed.
Teaching kids about money, however, can be more stressful than amusing. I decided to ask advice from the leading expert, Neale Godfrey, who has written sixteen books dealing with money, life skills, and values. Her books include Money Doesn’t Grow on Trees: A Parent’s Guide to Raising Financially Responsible Children, which was number one on the New York Times best-seller list.
Godfrey and I started by talking about little kids. She laid out her basic system: Kids should get an allowance. She recommends paying them their age every week. They must do chores, which are checked off on a family job chart. Parents should then help kids budget. She suggests getting four clear plastic jars. The first jar is for charity. You take 10 percent off the top for charity. The remaining 90 percent is divided into thirds. The first third is quick cash. It is instant gratification. The second third is medium-term savings. You are teaching children to push off instant gratification and save for something bigger that they want. The last jar is long-term savings, for college or the future.
As children become teenagers, the basic system stays the same. However, it gets more sophisticated. Kids put money in the bank instead of jars. Here are some excerpts from our conversation about teens:
Q: When can you start teaching them about investing and a more sophisticated way of managing money?
A: At ten, you can start investing some of their long-term savings in the stock market. They are picking the stocks, however they want to do it. Maybe your child picks Disney. You get the annual report, you go online, you talk about how Disney owns ABC and other things, you talk about how you are taking a trip to Disney this summer. It comes alive. At twelve, they can start learning about mutual funds. You can also start weaning them off the system with the jars. You set up a bank account. At this point, you may also want to provide them with a clothing budget. They get a certain amount of money four times a year.
Q: Should teenagers be required to work at real jobs to earn money?
A: They certainly should be doing something in the summer. During school, they have so much going on that I don’t like them to be working too much.
Q: A lot of teens get in real financial trouble when they leave for college with their first credit cards. Any advice for parents?
A: I start with a cash card that has been pre-loaded with a certain amount. You are teaching them that level of responsibility. You are weaning them into the real world.
Q: Any other advice on teaching kids about money?
A: Talk to kids about money. Make the world your classroom. Talk to them about how much things cost at the grocery store.
Q. That’s interesting. When I was growing up, we never talked about money in my family. I had no idea how much money my parents had.
A: For many of us growing up, it was always the biggest secret. Money is something we should be talking to our kids about.
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