Show #268 Airing Sunday, September 5, 2004
Question: Is it important to sit down with children and actively teach them about money? Why?
Answer: Very. American children are profoundly financially illiterate. Kids can graduate from high school and barely know how to make change. These same kids go off to college and are inundated with endless credit card offers in the mail.
According to the JumpStart Coalition for Personal Financial Liberty, most kids at American universities receive an average of eight credit card offers the first week of college. They will graduate with an average of $3,000 of credit card debt, most will pay only the minimum payment, and it will take 30 years to pay it off.
We need to start talking to our children and grandchildren when they are young to not get to that point.
Question: Why are kids today so unprepared for dealing with their finances?
Answer: In the 50’s and 60’s, polite adults didn’t talk about finances…even with their kids. That idea lingers to today. We aren’t bringing up financially savvy kids.
Question: Okay. So how do we actually go about teaching kids about finances?
Answer: Learning life’s natural consequences. Children have to learn early on that money follows work. It’s not normally given to them as an entitlement. The child is ready to be taught this lesson once they understand “What do Mommy and Daddy do with money in the store?” So how do you teach your child to earn money and then handle it?
Citizen of the household. Work-for-pay means an allowance based on a specified series of chores that are over and above what it expected for the child. For example, don’t pay children for brushing their teeth or going to bed on time. Instead, pay them for age-appropriate chores.
The job chart. Make a list of chores the child can handle and put a chore schedule in a visible part of the house. No work, no play.
Question: Those seem like practical ways to teach kids the value of money. What about teaching them to save? Any tips?
Answer: There’s a system called the “Four Jars” you can use to teach kids how to save money. Get four jars or four banks, and label them the following:
1.) The charity jar. 10 percent of the allowance will teach kids to make giving a natural part of their earning transactions. Help them research charities and figure out where they’d like to donate.
2.) The quick cash jar. 30 percent. The child can take money out at anytime to spend on whatever they want. Let the kids make their own mistakes.
3.) The medium-term savings jar. 30 percent. The jar where your child saves money for a larger purchase, teaching them deferred gratification, which is a very important skill.
4.) The long-term savings jar. 30 percent. Yes, you’re starting to save for college in this habit-building exercise.
Jim Lineweaver is a registered representative of and offers securities through Walnut Street Securities, Inc. (WSS) Member NASD/SIPC.
Branch Office:
9050 Sweet Valley Drive,
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WSS does not offer tax or legal advice.
Lineweaver Financial Group is not a subsidiary or affiliate of WSS.
Material discussed is for information purposes only and should not be the basis for any investment decisions.
