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Kids and Money: The Future of America

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Tuesday, 26 June 2007

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Kids and Money: The Future of America
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Wow, I just watched this nice 15 minute New York Times documentary about adolescents in Los Angeles and how they approach money and I can't say I'm surprised at the way rich kids treat money. These are future Paris Hiltons that America's parents are cultivating, aka "trust fund babies". Teens owning several different thousand dollar handbags just to look cool for high school is outrageous. Click here to see the NY Times documentary.

On the other side of the money fence, they also show teens who are working to apply for school financial aid and first generation immigrant teenagers who understand the value of a dollar.

Schools do not generally have finance classes in elementary school, so this knowledge must come from parents. It's important to instill the values of saving into our children in this day and age of "spend now, worry latter" instant gratification. I don't think any parent wishes their children to grow up heavily in debt.

So what are some good ways to teach kids about money?

Teach them the power of compounding

According to experts, kids are more impressed by the power of compounding than adults are. A great example is to ask them if they would rather have savings that doubled every day starting from one penny. Or if they would rather be given $100 a day. Ask them which one would accrue them more savings by the end of the year. You could draw out the numbers on paper and show it to them to prove it if they don't believe it.

Teach them saving using a piggy bank

If the child is very young, a piggy bank with spare change can be useful to learn about saving. When they get older, you can teach them about bank accounts and set up a custodial account for them. A good way to explain it to them is that a bank account is just like a piggy bank except the money is stored elsewhere and the bank sometimes pays them extra money (interest) for holding their money.

Get them involved in a stock market game

When I was in elementary school, we did this and I thought it was an awesome idea. It was a little more difficult back then as we had to use newspapers and calculate the stock prices using fractions rather than decimals as is used nowadays. You could offer them an incentive of some real cash to invest if they do well investing in a virtual stock market.

Household chores for money

Kids always want to buy some toy or another. By paying them for doing jobs around the house, you can give them a sense that they are earning their money and saving it to pay for their favorite toy or video game as a financial goal. Another bonus is that your house/room gets cleaned up.

Outside jobs for money

When the kids are old enough to work outside, they can mow lawns, shovel snow, sell lemonade, work at a supermarket, fast food chain, etc. to produce income. If they do this, you can also help them set up a Roth IRA should they choose to save their money for the future.

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