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Teaching Smart Kids Money Smarts

You know your child is successful when he understands dollars and cents. Smart kids know how to manage money. Sound attitudes about money cover budgeting, saving, and spending wisely. To fulfill your duties as the parent of a smart kid, help your child learn money management basics.

The economics of running a family

Relate money matters to your child's everyday experiences. This reality-based form of education causes infinitely less eye-rolling when imparting your wisdom about money and safe ways to handle it:

  • Start talking about money early. Get in the habit of explaining personal experiences, mistakes, and how you handled them according to your child's ability to understand. Kids as young as 3 can learn to identify coins and numbers on dollar bills. Reinforce the idea of trading or exchanging money for goods. Show your older child when you handle money, either by writing checks, giving real money, or charging.
  • Allow your child to handle money as he ages.

• Practice money transactions by playing store at home.

• Give your child coins to get treats, healthy ones, of course, from a vending machine.

• Encourage savings in a piggy bank, special container, or real bank account after a certain amount is saved. Open a separate account for your child with a separate passbook so that he figures out how to handle bank transactions and can watch the money grow. Require your child to save a portion of gifts or allowance to ensure financial growth.

• Keep the bank book in a safe place where you can monitor its use. You don't want a dog-eared, page-ripped-out version, and you don't want to lose proof of savings.

• Send your child to the store. Write down one or two items on a note at first, and place the note and money in a wallet, pouch, or envelope to keep the receipt and change together. With practice, your child can choose items, stand in line to pay, and count change independently. If travel to a store isn't practical where you live, take your child to the store but let him handle the transaction.

  • Talk through the mental evaluation process you usually go through silently before purchasing something. Casually mention these deliberations to your child on trips to the mall or supermarket. Discuss what's a fair price for a good or service. Ask your child's opinion about whether the product has good value for the quality and cost.
  • Reinforce the idea that planning how to spend prevents impulse buying — the purchase of unnecessary stuff. But realize that such budgeting isn't a strong trait among most kids. You want to plant a few seeds for later, such as the idea of making lists of what you intend to purchase before hitting the stores.

Impress upon your child that money is usually for what you need, not for everything you want. Expect this distinction to elude your child, as it does most kids, until he's spending his own hard-earned cash.

  • Decide how much you want your child to participate in family financial-planning discussions. You may feel that your child benefits from hearing where the money goes and how spending choices are made. Your child may like contributing to vacation, decorating, or repair plans.
    Be careful that your child doesn't hear so many gory details that he feels guilty about causing any change in the family finances, such as by asking for milk money or telling you he's sick.
  • Respond to questions about how much money you make by confirming that your child will always be cared for and safe. Should your child sneak into your bank book or overhear news about financial assets, remind him that the family's bank account is family business. In other words, family money matters cannot be the next topic for show-and-tell at school.
  • Tell your child something costs too much instead of saying you can't afford it. The slight difference in emphasis may keep your child from worrying that your family's next home will be a homeless shelter.

Giving allowance: Art or science?

The best way to learn about money is to have some to manage. That's where allowance comes into the picture. Allowance is not free money. As part of the family income and expenses, it should come with rules and responsibilities.

Consider these guidelines:

  • Set amounts according to what your child realistically needs. Decide what he must pay on his own. Then add a small amount more for recreation and saving.
    If you can't estimate, keep track of what your child spends during the first couple weeks of school. Then add up costs and necessary purchases and decide on a workable allowance together.
    Review the amount at the beginning of each school year when your child's expenses change. Increase the amount as your child matures and handles more responsibility. The flip side of greater independence is that it usually means your child goes to more places that cost money.
    Find out the going rate for allowance in your area. One child having too much money can be just as problematic as having too little. The exact amount boils down to your family's comfort level and your child's business expenses outside the home.
    Never measure your child's allowance based on what you received as a child. Times change.
  • Define your rules for allowance. Make sure everyone understands the same parameters and expectations. Be clear with your child if you expect the money to go for savings, pay for school lunch, or function as a donation to charity. Set limits upfront about how much junk food or the type of video games he can buy. No one likes surprises: They're not fair.
  • Deliver allowances on time and consistently. Your child can't practice managing money if payments are sporadic. Pay younger kids at least once a week. Older kids can receive money weekly or wait until the breadwinner gets paid.
    Make sure your child knows that after the money goes, he waits until the next allowance for more. Restrain yourself from feeling sorry for your kid. Don't give in to pleas, tears, or threats that your blackmailer will become a street beggar unless more money is forthcoming. Dealing with running out of money is the way your child learns the art of budgeting.
  • Offer an allowance without strings attached (except for those discussed in the original allowance agreement). The money belongs to your child to manage or mismanage as he pleases. What better ways to learn budgeting than to pay too much for a CD, find a cheaper one at another store, and have no money left to join friends at a movie theater?
  • Remember these three no-nos:

• Never deny allowance as punishment. You don't want you or your child connecting money with love. This plays poorly on a smart kid's psyche.

• Never offer extra allowance for achieving more, such as getting higher grades. If you do that, the money, rather than the accomplishment, becomes the payoff. Smart kids achieve because of an inner desire to perform well. Celebrate in other ways, like going out together or making a favorite recipe.

• Never link allowance to everyday chores. Household chores, such as cleaning the bedroom or helping with dinner, are responsibilities of living in a family, something smart kids understand. They are expected and required.

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