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Monday, September 27, 2010

You can be young without money but you can't be old without it.

I received many responses to my blog post entitled, “Piece of mind a few bucks at a time” and have decided to touch on a topic in a similar vein. Given the tenuous nature of the economy at this juncture people’s money and economic concerns come to the fore; this leads to the conundrum of the subject of money and the kids. Raising kids is an expensive proposition according to an article I read on MSN Money ; for those that earn $70K or more  a year the total expenditure to raise a child was pegged at $269K to $284K depending on location.  There is more than just the cost of having and raising children that is important to consider. As the title of this post, which is a quote from Tennessee Williams, implies attitudes about money formed as a child can have a great impact and consequences as an adult. One has to consider how to talk to and teach their kids about money; depending on the age of the children determines the tact taken.

For very young children it is difficult to broach complicated topics and they do not really need to know nor would they understand the implications of your monetary situation. If you have young children it is up to you to manage the situation and not get caught up in purchasing beyond your means. The costs associated with children can really add up quickly when one doesn’t stop to think about what they are spending and if it is right or necessary. One can spend an absolute fortune on those little outfits that the kids would look so cute in or the full blown petting zoo for their first birthday party. There is a bit of “keeping up with the Jones’” going on here and we all fall in to this trap sooner or later. One needs to stop and ask themselves the question... who am I really buying this for? Is this item really going to benefit my child or is it really for me?

As the child gets older things get more complicated. Sooner or later your child will want various toys, games, or clothes. Children are exposed to items that they will want through multiple sources like friends, Television, or even just being out in the store with Mommy and Daddy. It is amazing how even at a young age it becomes important for kids to not only get the latest toy, but also its impact on their perceived social status.  It always amazes me when I am in a store and see a child of no more than 4 years old haggling with a parent for some pricey item using the argument that “Timmy has one I want one too”. It is at this point that lessons about money and value can be taught in a painless fashion. However, it has been my experience that parents take one of two paths; 1) either a flat out No! or 2) they acquiesce and purchase the item. Now granted I don’t know the household situation or what deals have been struck ahead of time, but time and care can be taken now to lay the foundation for kids to learn how to be good with money, shopping and learning to live within their means; something so many adults are lacking.

First, to avoid the conflict parents can set expectations up front before entering the store. One has to state the objective before entering the establishment, “Timmy we are here to buy X and then we are going home for lunch”. A statement like the preceding sets the stage and also gives the parent an out when Timmy sees the new “Despicable ME” action figure. “No, Timmy we are here only to get X like I said”. Obviously, it is never that simple but if you set the agenda this  not only allows you to negotiate your way out of an impulse purchase, but also teaches your child that one can go into a store without having to buy everything they see.

As the child gets a little older and shows more maturity, this allows a better understanding of more significant monetary concepts and new more complicated ideas can be introduced. Parents should help their child make the link between wanting an item and earning and or saving toward an item. Parents need to figure a way for their child to earn some of the things that they want beyond that which the parents are willing to purchase. Due to labor laws and practicality parents are not going to put their kids out in the workforce to earn money to buy toys or clothes, so one needs to be a little creative here.  For example, one could offer to the child that if they perform specific tasks they would earn a certain amount that is held  in an account for them toward a goal.

Implementing a scenario such as the aforementioned does several things to promote good money management and self esteem. The child learns that money is earned and the goals are a good thing to have, and you can show them their progress; which gives them a sense of accomplishment. The concept of deferred gratification is something that is missing in today’s get it for me yesterday society, instead the mantra is buy it now and worry about how to pay for it later, though it is changing. Moreover, a child that earns an item will put more value on it and take better care of the item.  Let’s face it at every age, but especially when kids are young they don’t want to listen to their parents but instead need to learn lessons on their own. In this vein I am paraphrasing Mark Twain who once said, “When I was 18 years old my father was the dumbest man to walk the face of the earth, but when I turned 21 I was astounded by how much the old man learned in 3 years”.  The point is that they will not realize it but you are aiding them in developing good financial habits and promoting their emotional intelligence but you will be giving them a leg up in the future,  potentially helping avoid future financial pitfalls.

Although there are many schools of thought on the subject, in my household, we felt that around first grade was the right time to start the kids with a small allowance. The allowance was not tied to any specific chores but instead it was just given to be used for their discretionary purchases. They could save their allowance or combine it with other funds earned for larger purchases. This method allowed my son at the age 8 to purchase a Nintendo Gameboy which he later sold after saving enough for a Nintendo DS, both of which remained in excellent condition.  He kept saving and had later purchased a Sony PSP that he has had for 3 years and recently was able to sell it since he kept the unit in great condition.  Although the kids are free to do what they want with the allowance we encourage them to save what they can and also to donate some of the money to charity.  The allowance is a small painless way to teach your kids how to save as they can see for themselves that if they run out an blow all of it on Pokemon cards the day they get it they will not have other money unless they can convince you to pay for something. Kids are surprisingly smart in this way and figure out very quickly that if they are responsible for acquiring specific items they want they will learn to save and crudely budget.

I did mention charity as the old saying goes charity begins at home. In light of the situation that has been brewing for the past few years we have made a conscious effort instill the idea of charity. To my kids charity is not only money but time, volunteering counts, however, this article is focused on the monetary. We give to various charities as do the kids. Moreover, the kids know that we donate food every week on the way back from the grocery store. We have set aside a small portion of our food budget to buy canned goods and cereal every time we shop and then donate the purchase to food banks here in the Boston area. Additionally, in these hard times my kids have seen me give a dollar or two to people holding signs on the side of the busy roads here in Boston. Giving money to these poor downtrodden souls has allowed me to demonstrate charity in action and explain in simple terms that we are fortunate and you should always help where you can, a lesson that is priceless for only a dollar or two.

So far we have covered the easy stuff because the older ones kids get the more complicated the situation gets. Tomorrow we will continue to look at money issues as the kids move up through the preteen\teen years.

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