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Raising Financially Savvy Children

by Sheryl Nance-Nash

Next year, Silvana Clark wants her teenager Sondra to get a minimum-wage job at a fast-food restaurant near their home in Tacoma,Washington. At age 15, Sondra has already authored five books, including You Can Change Your World! But Clark wants to keep her daughter grounded. "I'd like Sondra to learn how to handle someone who is complaining because his or her fries are cold," she says.

Clark and her husband, Allan, a property manager, believe that hard work teaches children the importance of earning a living. Their oldest daughter, Trina, now 32, modeled when she was young. But Trina also spent three weeks one summer picking strawberries for $5 a day, working from early morning till 4:30 in the afternoon. "We wanted to make sure our children had a healthy outlook on saving and spending," says Clark.

At a time when virtually every message on television, in films, videos and computers promotes spending, not the old-fashioned virtues of sacrifice and thrift, many parents are redoubling their efforts to give their children a balanced perspective. By the time a child is 21, he or she will have seen 23 million advertising impressions, says Nathan Dungan, author of How Not to Be Your Child's ATM: Prodigal Sons & Material Girls. Today's young people, he says, spend five times more money than their parents did at the same age, when adjusted for inflation. It should come as no surprise then that by the time many students graduate from college, they have nearly $3,000 in credit-card debt.

What's to keep children's spending habits in check? The answer is parents. They are the first and last lines of defense in teaching their children healthy financial habits that will last a lifetime, and helping them handle all the images and advertising they see in the media.

Turn Off the Marketing Messages

When Trina was a teenager, the Clarks encouraged her to think independently. They did not want her to become so fond of designer labels that she couldn't see value in less expensive items. So they sewed a designer label onto a trendy shirt they had bought at a less expensive mass merchandise store. Trina didn't know the difference and began wearing her favorite shirt twice a week. When the Clarks told her what they had done, they all had a good laugh and Trina learned a life lesson about how hype can affect perceptions of quality. Experts say it's important to tell children they are too smart to believe all the publicity surrounding products. The message parents ought to convey to their children is that being happy and well liked is not about wearing designer clothes or having the latest gadgets but instead how they feel about themselves inside.

Set Spending Goals

Kristin Shanahan, a financial expert in Auburn Hills, Michigan, says setting goals for spending is a great way to teach children how to save. A short-term goal could be saving up to purchase a pair of sneakers. An intermediate goal could be setting aside money for an iPod, and a longterm goal could be saving for a special trip or college.

Setting goals also helps children separate their wants from their needs and teaches them to plan. An item that isn't on their list of goals should be scrutinized, with tough questions about why it's important, how it fits into the big picture and whether it meets the "need" test. In other words, do they really need it?

Shanahan encourages children to keep a journal of their expenses for a month, writing down every purchase, even gum and soft drinks, so they can see what they are spending their money on.That way, they can determine whether they're buying something they really need or simply want.

She says, "Sometimes a child has to make decisions, like 'Could I have waited to ask for that CD as a birthday gift, instead of spending my own money?' You want to steer them away from instant gratification."

Establish Priorities

Natalie Vollmar is just five years old, but her parents, Teri and Jeff, are teaching her to make choices about how she spends her money. They encourage Natalie to save a portion of the money she gets from her grandmother and the tooth fairy. Teri says when they go shopping, Natalie "picks up 10 things, but I'll tell her to choose one because I want her to know that she can't have everything and that she must decide which item means the most to her."

One way to teach children about prices and sales is to take them to the store and have them decide which items to purchase. Set a budget for your shopping trip and then stick to it. Give children a calculator and let them keep track of how much they are spending. If you have to override their decisions, make sure they understand why. The experience will broaden their sense of responsibility and improve their analytical skills.

Are Allowances Important?

By giving children a weekly allowance, parents can eliminate what Dungan calls "the nag factor." Children have their own money and they don't have to keep asking you for it.The challenge for kids, however, is figuring out how to spend their allowance. And a common question for parents is how much they should give.

Experts say allowances should depend on what your family can afford. The guideline is often $1 a week times the child's age.

Another question parents ask is whether an allowance should be tied to chores. Again, it's up to you. Some experts say that as members of the family, children should not be paid to contribute to the household. But most experts like the notion of money being earned for doing chores because it teaches the relationship between working and earning money. Should children be rewarded if they don't keep their rooms clean, put away the dishes or take out the trash?

Another positive aspect of allowances is that they are a starting point for developing money-management skills because they encourage children to make decisions about how cash is going to be used. Children can learn from their miscalculations, such as spending all their money at once or making foolish buying decisions.

How should allowances be handled? Experts say the money should be divided three ways — shared, saved and spent. Sharing can be giving to a charity or an organization that your child cares about. Dungan says, "Sharing gives children a sense of gratitude — that they recognize the needs of others. Saving teaches discipline and patience, and prepares them for the future. And spending teaches money-management skills."

Teach by Example

Some parents are avid consumers themselves.They associate buying things with feeling important and want their children to feel the same.They also want their children to feel loved and to know that they're in their corner. But buying everything your child asks for is not going to prepare him or her for the real world, say experts.

Many psychologists say parents should teach children that the world does not operate like their family. They also point out that children don't appreciate items that are heaped on them all the time.

If, for example, your teenager wants a car, then make him or her work hard to come up with a portion of the money.

You want your child to know that the car is special and can't be replaced easily if there's an accident or if it is not properly maintained.

By the same token, you can't expect children to take on money habits that you don't possess. Be conscious of what your actions tell your children about money. If you never have enough money, or if you fight with your spouse about it or use it to satisfy every whim, your children are likely to follow your lead.

According to psychologists, it is important for parents to feel okay saying no to some of their children's requests. No isn't a rejection; it is a boundary, and sometimes a very important one.

Adapted from Today's Focus, Fall, 2005.

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