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Don’t Make This Mistake With Your Child

Don’t Let MTV Teach Your Kid About Money

A friend of mine on Facebook posted a story about her three year old son throwing a tantrum in a toy store. He wanted a toy that Mommy was not willing to buy. The status update went on to state that the child began crying and yelling at his Mom to buy the toy for him. She expressed embarrassment and frustration over her son’s reaction.

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The most common response by parents when trying to get out of buying something their child requests is to say “We can’t afford it.” While that may be true from time to time, that statement may be doing more harm than good.  Saying that can create a negative association when it comes to money in a child’s mind. Children may start to worry about money unnecessarily and learn to equate money with financial disappointment.

That’s not what we as parents want. The problem lies in our own feelings about money. Many parents are reluctant to talk about money with their children. We fear having to reveal too much personal information to our loud mouthed children. Nobody wants their children to run off and tell their friends how much money mommy and daddy made last year or how much we paid for our house.

Another big fear is having to admit our own mistakes with money. No one has gone through their entire lives without making a mistake or two with money. It could be debt, overspending, lack of savings, low credit scores, whatever, but we all have areas of our financial lives that we know we could improve upon. Admitting that to a child can be hard to do. You don’t want your child to make the same mistakes you made. It’s best to look upon your weaknesses as examples of consequences and what can happen when they make the wrong decision. Use situations like these as teaching tools of what not to do.

Overcoming this fear of talking with our children about money is the critical first step we must take in teaching our kids about money. Children learn about money way before their first credit card or savings account. They pick up bits and pieces every day. Parents reactions to everyday bills, taking money out of the ATM, and using coupons at the store are all examples of everyday interactions with money our children are learning from.

So it makes sense to speak with our children early and often about money. Just how early is a parent’s personal decision. But starting when they learn to count isn’t a bad choice. Little kids are conservative by nature when it comes to money. As soon as kids learn that money buys them items they want like toys and candy, they begin to stockpile every coin they can get their hands onto. How this natural reaction is encouraged and reflected upon can influence how your child manages their money in adulthood.

One of the earliest lessons you should teach your children is where money comes from. Little kids may realize that money doesn’t grow on trees but they may be confused as to its actual origination. For all they know money grows out of ATM’s since that’s likely the only place they’ve ever seen it come out of. I remember when my little cousin thought the ATM was some sort of mystical machine that handed money out to people who knew the magic word. That’s why it’s important to communicate to your child that a good days work brings about a good days pay not magic. The value placed on this principle can determine your child’s financial success later in life.

A great budgeting exercise for kids is to use the envelope method. Use 12 envelopes to represent each month of the year. Have your child keep a running tally of what they spend their money on each month and how much they are able to save. This is a great way for young children to examine their spending and budgeting habits early on.

You can use everyday activities as teachable moments. When paying bills each week educate your child about covering all bills that arrive at different times of the month, interest rates and how late payments can impact your credit score. A trip to any store can be an opportunity to illustrate value and price comparison. When your teen gets their driver’s license take the time to talk about the importance of insurance and appropriate levels of coverage.

Basically there are four main topics you want to cover with your child when it comes to discussing money.

1.    Savings. Try to instill in your child your beliefs about proper saving levels. Teaching a child early on the importance of saving twenty percent of any money they earn will more than likely carry over into adulthood. Good behaviors like this help ensure financial success as your child ages.

2.    Budgeting. This is mostly about a child’s ability to delay instant gratification. Explain how setting goals and working towards them can reap great rewards.

3.    Spending wisely. It’s important to impart upon a child the dangers of overspending and incurring debt. This can also be an opportunity to talk about wants versus needs. A cell phone is a want, not a need. A new pair of jeans is a want, not a need.

4.    Investing. I’ll admit this is a topic probably best left till kids are a bit older, perhaps their teenage years. Just don’t wait until their first job to talk about 401(k)’s and retirement. The key focus should be on the power of compounding interest. Use financial calculators found online to show them how much their initial investment could grow to in five, ten, even twenty years. Time is on their side at this point and they should learn to leverage that benefit to the fullest extent.  Compounding interest is a ‘real magic trick’ that can get kids excited in a good way when they’re show it’s power.

While these topics are important to cover what matters most is that the discussions are frequent and comfortable for your child. Your children are learning about money from the world around them. Who knows what values their friends are teaching them about money or how TV shows like Jersey Shore are influencing their financial decisions. What you really want is to impart your values and beliefs about money to your child. Don’t leave it up to MTV or the kid down the street whose parents can’t balance their checkbook.

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Keeping Money in Your Pocket,

Nancy Patterson


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