Your (obviously above-average) kid may be able to plunk out a Mozart concerto and ace his biology test. But can he stick to a budget? Handle a credit card? Pay an electric bill?
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Let's face it: Once your children hits adulthood, those finely honed piano skills matter slightly less than his ability to handle their own financial lives. Susan Beacham, a kids and money expert and CEO of Money-Savvy Generation, puts it bluntly: "We fail as parents if we do not arm our kids with the ability to manage money as strongly as we do with other life skills."
To equip your kids with good financial sense now -- before they have to learn things the hard way -- make time for these eight skill-building experiences:
1. Help make the family budget. Most kids are clueless about where their family's money goes -- one reason why they have no problem wheedling for any big-ticket item that strikes their fancy. So invite kids to a once-a-month budget meeting, where they'll learn about the big-picture state of your family's financials, plus learn techniques for devising and tracking a spending plan. Most important, says Pamela Yellen, a financial security expert and owner of BankOnYourself.com, is to "talk about everything you bought in the last month, and everything you're thinking of buying soon, and ask if it's really a need or a want." Clarifying the difference between needs and wants "over and over again can rewire that urge to buy everything."
2. Buy a stock. Beacham once took 63 second-graders to a McDonald's shareholder meeting, but all you really need to do to make an abstract concept like investing more down-to-earth for kids is buy a single stock in a company your family knows and loves (think PetSmart, Coca-Cola, Netflix). Once children grasp the idea that if their company does well, they do well, they'll root for daily check-ins with the Wall Street Journal financial page -- especially if they tie the success of your stock to the speed with which they'll meet their long-term savings goals.
3. Buy the groceries. "One of my clients took his daughter to the grocery store and said, 'We have $15 to buy a meal for tonight. How are we going to spend the money?'" reports accountant Jane Honeck, author of "The Problem with Money? It's Not About the Money." Between assembling the ingredients for pizza, sides and drinks, budgeting in tax and figuring out how to maximize nutrition for their money, the client's daughter got a practical lesson in both math and responsible spending.
4. Pay the bills. The mechanics of monthly bill paying can trip up adults, so show tweens and teens how it's done by letting them read one of your bills, figure out the amount and the due date, and actually write the check -- a physical act that makes the idea of sending money to the electric company more real. If you usually pay online, reserve a few bills that you pay for by mailing a check, and let your teens handle them.
5. Get an allowance -- and learn how to spend it. Whether you give your kids $1 a week or $20, most important, say experts, is helping them plan where to put their money. One smart system: the 40/30/20/10 savings formula. Kids get 40% of their allowance to spend, then funnel 30% toward short-term savings goals (such as a smartphone for teens or a pricey Lego set for younger kids) and 20% toward long-term savings goals, such as college. The last 10% goes to charity. "This is how to ensure that the kids are developing lifelong successful savings habits," says Yellen.
6. Set a savings goal. Kids as young as 5 or 6 can imagine where they'll be in 10 years and what might be high on their list of must-haves then. A car? A computer? A college education? Help them draw a picture of one thing they think they'll want, so when you dedicate a portion of their piggy bank to long-term savings, they'll know exactly what they're funneling their money toward.
7. Start a lemonade stand. To value money, kids need to earn their own incomes. And for kids as young as first grade, the most exciting way to do that is by launching their own minibusiness; in fact, a 2010 Kauffman Foundation survey found that 40% of kids 8 and up want to start a business someday or already have. Whether a child peddles lemonade, handcrafted friendship bracelets or a dog-walking service, they learn self-reliance, marketing skills and money management. Start simple by organizing a family yard sale and promising to let your kids keep the earnings from any toys or clothes they sell.
8. Learn how to handle a spending card. The Credit CARD Act of 2009 made it harder to folks under 21 to get a credit card and clamped down on issuers' ability to market to college students. However, it hasn't completely kept cards off campus, so high schoolers need to learn how to handle plastic before they head off to college. Consider starting by loading their monthly allowances on prepaid credit cards; they'll get the experience of swiping the cards, but you won't worry that they'll overspend. Or let them use a debit card tied to their own checking accounts. It's not foolproof: Honeck remembers when her younger son used a debit card to make several small purchases, overdrawing his empty account and incurring $200 in overdraft charges. "The toughest part for parents," she notes, "is to let kids bear the consequences. But the sooner you do the tough love, the quicker they'll get the lesson."
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