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Raising
Money-Smart Kids
Part II: Smart Shopping, Investing, Credit
By
Carol
Cujec
carolcujec@yahoo.com
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Let’s
face it—kids are under more pressure these days to spend.
Babies are wearing designer clothes, and even toddlers are brand
conscious. (At age three, my son only wanted to drink the juice
with Buzz Lightyear’s picture on it—he called it his
“spaceship juice.”) So the sooner we start making kids
aware of saving, budgeting and spending wisely, the better they’ll
be at navigating the consumer jungle, says Jayne Pearl, author
of Kids and Money (Bloomberg Press, 1999) and financial columnist
for Oxygen.com.
Smart Shopping
Do your kids have a bad case of the “gimmes”? Can’t
go to the mall without them whining for you to buy them something?
Put them in charge of their own spending from their allowance,
says Pearl. “Once you start giving your kids allowance, you
should pull back on spending for discretionary items, especially
for the things which you’ve identified as being things for
the kids, like CDs or computer games or collecting cards or beanie
babies. Then a parent no longer has to say No. If a kid has the
money and wants to blow it, that’s fine, but then they won’t
have it the next time.”
What about shopping for clothes? To kids, popular brand names
are more important than prices. Let’s say you find a good
pair of sneakers for $50 but your child demands a pair of Nikes
for $100. Pearl calls that difference in price the “Cost
of Cool” and says that kids should be responsible for paying
that difference from their allowance.
For stress-free back-to-school shopping, Pearl says make a list
with your kids, determine a reasonable price for each item, and
calculate your final budget. At the store, the kids must buy every
item on the list, but if they find some bargains, they can use
the savings to buy something more expensive than what you’ve
budgeted. You then become the child’s “shopping coach”
instead of the villain always saying No. “There’s nothing
to argue over. Your kid is deciding what they want and you’re
helping them see if they can afford it.” With this strategy,
you make kids aware of their spending and teach them to look for
bargains and make trade-offs instead of just saying Gimme!
Pearl also has a “one comment rule” in her household.
“When my son is about to make a purchase, I’m allowed
to make one comment—a suggestion, a critique, whatever. Then
he makes his decision and I have to shut my mouth. There are family
rules, like no sexual content and no violent content. As long
as he’s not violating one of those rules, he gets to buy
what he wants.” If your child makes a bad purchase, it’s
all part of the learning process, says Pearl. “I’d rather
he make a 12 dollar mistake at age eleven than a 12 thousand dollar
mistake when he’s out of college and buying a car, making
decisions based on foolish criteria.”
Learning About Investing
Encourage your children to save a portion of their allowance long
term, says Hollis Harman, author of Money Sense for Kids! (Barron’s,
1999). Once they have saved about a hundred dollars, show them
ways to invest that money so it will grow faster. Harman uses
a bicycle metaphor to explain investment and risk to kids. “The
bank is the tricycle, and a bond is a two-wheeler with training
wheels. Take off the training wheels and you’re into a mutual
fund and you have this pool of managed stocks. And when you put
the responsibility on yourself, suddenly you’re on this road
bike with your shoes clamped to the pedals and your helmet on.
You’re in for the ride of your life with the greatest risk
but also the greatest rate of return.”
Kids (and parents!) who want to learn more about the stock market
can play at investing with several online stock market games geared
towards kids. The Stock Market Game (http://www.smg2000.org/)
for grades 4-12 helps kids research stocks, choose portfolios
and track the progress of their “investments.” Harman
is also launching her own stock market game on her website http://www.kidsfinance.com/.
When your kids are ready to invest, instead of paying brokerage
fees, look for companies that sell shares directly to the public
with little or no transaction fee, says Pearl. These dividend
reinvestment plans (DRIPs) are offered by about 1100 U.S. corporations.Credit
Cards for Kids?
Easy credit bombards kids once they leave home. Teach teens how
to use credit cards responsibly before they leave home, says Pearl.
A secured credit card is a good way to start. It allows kids to
charge only up to the amount deposited in a savings account. “Get
them in the habit of paying off the entire balance every month
and only charging what they know they can afford.”
The goal is to teach our kids to be fiscally responsible. After
all, they’re going to be taking care of us one day, right?
“Establish a good relationship with money and maybe in the
future you don’t abuse it,” says Harman. “The sooner
kids start, the more cushion they can be building for funding
a dream, providing for an education, and helping those who are
less fortunate.”
Carol Cujec is a freelance writer based near Boston, MA. She
can be reached at carolcujec@yahoo.com.
Online Resources:
Jayne Pearl’s “Kids and Money” column on Oxygen.com
http://ka-ching.oxygen.com/family/mother/
Stock Market Game
http://www.smg2000.org/
Stein Roe’s Young Investor Fund
http://www.younginvestor.com/
JumpStart: Financial Smarts for Students
http://www.jumpstartcoalition.org/
Practical Money Skills: By Visa U.S.A., teaches parents and kids
about finance
http://www.PracticalMoneySkills.com/
Sovereign Bank’s Kid’s Bank
http://www.kidsbank.com/
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