School might be out,but that doesn’t mean learning has to stop. In fact, summertime is the ideal time to teach kids valuable money management lessons that will stay with them for the rest of their lives.
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According to Mike Sullivan, director of education at Take Charge America, a non-profit firm that provides nation-wide credit counseling services, “Parents are the most influential teachers of financial management.” For one thing, they’re the earliest role models a child comes in contact with. (If you think your 4-year old isn’t watching like a hawk when you swipe your credit card in a store or when the ATM magically spits out cash, you’re kidding yourself.) Parents are also the ones who “control the purse strings.”
Even when children's only source of income is an allowance, it’s time for mom and dad to begin teaching basic financial concepts, such as saving and responsible spending. “Seventh grade is a good time to start,” according to Sullivan, a former teacher.
For example, if your son wants a new bicycle, talk to him about what it will cost and how he plans to pay for it. Discuss things such as how much of his allowance he can afford to save, and how many months it will take to come up with the money needed. “Offer a little bribe,” suggests Sullivan. “For example, if the bike costs $150, [you might] tell the child if they can save $100 in eight months, you’ll give them $50.”
From your son’s point of view, the end result is the bicycle he’s been dreaming of riding. But he's also learned life-long lessons of three fundamental money management keys: setting a goal, planning how to reach it within a certain time period, and saving. “If it’s one concept people need to learn, it’s delayed gratification,” says Sullivan. “They’ll stand in line for 48 hours to buy the newest iPhone and put it on a credit card. Life can be more satisfying.”
Once a child is in high school and working, parents should add the “earning” component to financial lessons. "Managing your own money means more, even if it’s just a summer job,” says Sullivan.“Make them budget. Let them decide, but say, ‘show me.’” He suggests having a blunt conversation with your teenager about their money plans asking, "Are you going to save? If not, what will you do later on [if you need money]?”
Sullivan, the father of three, would give each child a check every fall for what he estimated he would spend on them during the school year for such things as clothing, special events like the prom, etc. “I’d write a check for $1,800 and say here’s the money. Don’t come asking me for any.” He admits there were “a few tears” when there wasn’t enough left to buy the prom dress one daughter wanted, but emphasizes the importance of giving a child the freedom to manage their own money as well as to “bear the consequences if they don’t do it well.”
He says all three of his kids have grown up to be young adults who know how to responsibly manage their finances, and don’t come to mom or dad looking for a handout or a bailout.
Over the past 10 years Take Charge America has contributed more than $4 million to fund the Family Economics and Financial Education (FEFE) program at the University of Arizona, which is aimed at improving financial literacy among Americans of all ages. Through its outreach efforts, junior and senior high school teachers around the country can receive training and access 70 free lesson plans on personal finance tailored to students in grades 7 thought 12.
From 50 teachers and 1200 students a decade ago, last year 25,000 educators used FEFE materials to teach basic financial management skills to some 750,000 students. Courses cover such topics as analyzing “needs” versus “wants,” setting financial goals, how to read a paycheck, and how to understand a credit card statement. Materials can be downloaded by teachers, parents and anyone else who is interested at www.fefe.arizona.edu.
Ms. Buckner is a Retirement and Financial Planning Specialist and an instructor in Franklin Templeton Investments' global Academy. The views expressed in this article are only those of Ms. Buckner or the individual commentator identified therein, and are not necessarily the views of Franklin Templeton Investments, which has not reviewed, and is not responsible for, the content.
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