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Teaching Kids Money Sense

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“Don’t use real money. Use that magic piece of plastic.”

Those were the words then–bank president Neale Godfrey heard coming from the mouth of her young son. He had seen a toy that he “needed.” When she told him he didn’t need the toy, he encouraged her to use her credit card, or “that magic piece of plastic.”

“Here I was a bank president,” says Godfrey, “and my own children missed the lessons about money.”

Since that day, she has made it her personal mission to educate families and kids about money. Here are some of the best tips!

Earning

Parents should ensure that children know money doesn’t grow on trees, and that it certainly doesn’t come from a magic piece of plastic. Kids should understand that through chores, work, and possibly their allowance, they earn money; they are not entitled to having money.

1. Teach Kids the Value of Hard Work

The easiest way for children to earn money is through household chores. Godfrey suggests making a chore chart divided into two categories of chores. The first category is for “citizen of the household” chores, which are unpaid yet required chores that children are assigned to do simply because they are members of the household. The second category is “work for pay” chores. This isn’t about giving them money, however; it’s about teaching them the value of hard work.

2. Encourage Kids’ Entrepreneurship

Encourage children to find money-earning opportunities in addition to household chores. Having a part-time job can teach teenagers valuable money-management skills. In addition, your kids could try some of these money-making ideas:

•    Open a lemonade stand or babysit.
•    Offer to do yard work, walk dogs, or clean houses for neighbors.
•    Hold a neighborhood carnival with games and activities.
•    Hold a garage sale or sell old toys and clothes to stores.

3. Teach Kids to Manage Money

Many parents choose not to use allowances as a way to teach about financial responsibility because it makes kids feel like they are entitled to having money. However, an allowance can be a way to teach kids at a young age about money management and decision making.

Whether you choose to use an allowance or not, it should be consistent. Kids should be made aware that the allowance is not an entitlement but a privilege and a teaching tool.

Saving

Now that kids have their own stash of cash, they can do whatever they want with it, right? Well, not exactly. Although kids should be able to use a portion of their money on personal wants, they should be taught early in life the importance of saving and budgeting so that those habits stay with them as they grow up.

4. Teach Kids to Budget

Godfrey suggests creating an easy visual to help younger kids learn to budget by encouraging them to divide their cash into four clear plastic jars. Ten percent of their earnings should go in the tithing jar to be donated immediately. The remaining ninety percent should be divided into thirds: one-third for instant gratification (although parents should set the parameters of the spending), one-third for medium-term savings (for things such as electronics or clothes), and one-third for long-term savings (such as education, mission, or car). Once the kids get to be teenagers, the same principles should apply as they manage their own bank accounts.

5. Teach Kids to Visualize

Many parents worry about sharing information about family income and spending with their children, but lds.org’s finances section encourages us to “teach family members the principles of financial management. Involve them in creating a budget and setting family financial goals.” To demonstrate to your kids how the family uses money, you could examine your spending and create charts to visually show your children what percentage of total income the family spends in different areas. This can be a real eye-opener for children to help them visualize how much things cost.

6. Teach Kids to Set Goals

It’s important to help your children set goals for how they would like to use their money in the future. Would they like to pay for their education? Are they planning on serving a mission? Help them determine the cost of these goals, then break it down into chunks of how much money they should try to save per week, month, or year.

Spending

It is a glorious thing for a child to get to choose how to spend his or her own money. In all things, set the example yourself by the way you spend money.

7. Teach Kids to Spend Money on Quality, Not Instant Gratification

Teach kids that sometimes it’s more important to save up for something of better quality than to buy a lower-quality item just because it’s less expensive. Lermitte’s son bought an inexpensive truck at a toy store. When the truck broke, Lermitte told his son it would have been better to spend more to get something of better quality. Yet his son bought the same truck again, and lo and behold, it broke again. This was a good opportunity for Lermitte to teach his son the difference between quality and immediate gratification.

8. Teach Kids to Outsmart Peer Pressure

Especially as they reach the teenage stage, kids are going to be encouraged by their peers to spend money at places like the mall or the movies. Help your kids plan less expensive activities:
•    Outdoor games like Ultimate Frisbee
•    Writing, directing, and filming their own movie
•    Trying on crazy clothes at a thrift store
•    A karaoke night

9. Teach Kids about Credit v. Debit

Teach your kids not to go into debt by using a credit card. Credit card companies know that teens are vulnerable at a young age and will try to entice them with seemingly free offers to invest in a credit card. “Explain to them,” says Godfrey, “if you’re using your credit card, you pay the bill at the end of the month. If you get money out of the ATM, it’s your money that you put in that bank that you’re getting back. None of it is magic.”

10. Teach Kids to Use Helpful Websites

Your kids might be the interactive learner type, and if so, these websites are great ways to help your kids to keep track of their chores and their finances. And they've got great ideas for parents as well!

•    myjobchart.com
•    kidsfinance.com
•    moneyasyougrow.org

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