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Supplement to “Reality Town Teaches Real Life Lessons”

1. Lead by example. “It is hard to talk to a child about saving money when you are not saving money,” Dr. Robert Flashman, Cooperative Extension Service professor with the UK College of Agriculture. “If the parents don’t handle credit well, they can’t expect their kids to do it well, either. The best way to help them understand reality is by modeling good practices.”

2. Discuss your finances with your kids and involve them whenever possible. “Let them know what you are doing. If kids are involved with their own parents’ budget, they get an understanding of the bigger picture,” Flashman says. “They realize there is not an endless pot of money that somehow appears. They are getting a percentage like everyone else.” He also suggests letting older kids write out the checks so they learn how to do this and see the amount of money it takes for intangible necessities such as insurance.

3. Start early. “A 5-year-old does not need to know how much the rent is,” Flashman says, “but even at 2-4 years of age, children can start understanding how money works. Give your kids a small amount of money at the grocery store to buy something. When that money is gone, help them understand that they have spent their money for the week. This cuts down on the frustration and repeated requests for items at the checkout counters and helps children learn to make decisions. It will take a bit of time, but it will be worth it later.”

4. Give them an allowance from a young age. This gives them responsibility for their own money to spend, Flashman notes. “As teenagers, all kids should have a basic allowance and responsibilities. They should also be given money to make choices for clothing and other items,” he says. “Provide so much money for the year and help them make a list of the items they needs—sneakers, hoodies, etc. Don’t say you are on your own; instead, go into the store and help them with their choices. If they want a pair of Michael Jordan or Kobe Bryant shoes that cost $200, they will quickly see whether they can afford them or not.”

5. Match their savings. Mimic your employer by matching or doubling the money kids put toward savings. The added benefit of this practice is that you are teaching your kids to look for jobs that provide these kinds of benefits.

Parents should also help teenagers learn thrifty habits. An easy and fun way to do this is to give the teen coupons when they go to the store. If they use the coupons, they get to keep the money they saved with the coupons.

A final thought on savings: Flashman believes in the 60/40 rule. That rule says that you live on 60 percent of your salary. After that, 10 percent each is allocated for savings, college or retirement, leisure, and big purchases (junior prom, senior trips, etc.).

To read the Kentucky Living September 2009 feature that goes along with this supplement, go to Reality Town Teaches Real Life Lessons.

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