Money and kids
With many youngsters having received cash for the holidays, now would be a good time to start teaching them money management.
The level of financial knowledge among many young people is dismal, says an official of the Jump Start Coalition for Personal Finance Literacy.
A Consumer Reports survey of 12-year-olds found that 28 percent didn't know that credit cards are a form of borrowing; 40 percent didn't know that banks charge interest on loans; and 34 percent didn't know that you can't tell how good a product is by how much it's advertised.
Ignorance is not bliss, as the soaring number of bankruptcies among adults will attest.
So how should you prepare children to meet the financial demands they will face as adults?
How much is enough?
Children as young as age 4 can start learning how to divvy up available funds into different categories, such as saving, spending, and sharing. If your child does not have an allowance already, think about starting one.
Some experts recommend giving a dollar for each year of age, but Olivia Mellan, a Washington, D.C., psychotherapist, disagrees: $5 a week is too much for a 5-year-old, and $15 a week is probably not enough for a 15-year-old.
What's right for your child depends on three factors: the child's level of development, what you can afford, and what you expect him or her to pay for. Only when children have their own money to manage can they begin to put your lessons into practice. Just talking about money will not get the job done.
Next comes teaching the value of a dollar. A trip to the grocery store is a good way to illustrate the concepts of value versus price, and necessity versus luxury.
Grandparents can be financial mentors, too. Peggy Houser and Hassell Bradley Wright, authors of How to Teach Children About Money, suggest having grandkids set financial goals, such as getting an expensive toy. Then show the child how to save a percentage of their allowance each week until he or she has enough.
What to expect
The Jump Start Coalition says that by the fourth grade a child should be able to identify ways to earn money, list the costs and benefits of buying and maintaining an item, such as a bicycle, and open a savings account at a bank or credit union.
By the eighth grade, a child should be able to categorize expenses as variable, fixed, or periodic and develop a budget, while comparing interest rates on credit cards and loans.
This 13-year-old can also be expected to identify short-term financial goals (less than two years), medium-term goals (two to five years), and long-term goals (more than five years). The eighth-grader should also be able to analyze how to increase his or her skills to earn more money.
Jump Start says a high school senior should be able to understand insurance and know how to read and interpret stock-market tables in newspapers.
What you need to teach your child is not what to do with his or her life, talents, or money, but how to make choices, to make good decisions outside your supervision.
Money can bring freedom, or it can make us feel stuck in a lifestyle or job we hate. Good money-management skills can lead to higher self-esteem: there is something very powerful about being in control of your money.
MONEY WEB SITES
There's plenty of help available for youngsters wanting to learn about money. Parents can pick up information, too, from these Web sites:
www.themint.org Interactive site for middle and high school students, with information for parents and teachers, too.
www.socialfunds.com Information on 1-800 companies and mutual funds that are "socially responsible," including those that are labor-friendly, environmentally responsible, and have female and/or minority leaders.