pigybank_1105 Financially speaking, it’s a tough time to be a parent. While the economic turmoil may be behind us, many companies have frozen pay raises and bonuses while others have faced layoffs, and as a result, some families are still strapped. If you’re feeling guilty because you can’t buy your child that video game system he desperately wants for Christmas or if you’re asking him to choose between playing basketball or taking karate lessons this winter, Eric Tyson has one word for you: Don’t. In fact, he says, now is the perfect time to teach your kids some valuable financial lessons. 

“Kids are surprisingly aware of what’s going on in the world,” says Tyson, author of Personal Finance For Dummies®, 6th Edition. “And if they don’t know that times are a little bit tough and that mom and dad are having to watch their spending, it’s time to tell them. Sheltering kids from financial realities does them no favors.” Indeed, the opposite is true, says Tyson. A good grasp of personal finance is one of the most valuable life skills a person can have. And while previous generations may have been raised with the constant admonishment that “money doesn’t grow on trees,” too many of today’s parents neglect that lesson. It’s time to change that—and the severe recession we’ve been through provides a great incentive for doing so. 

Tyson offers the following tips to help you teach your children about money:

1. Tell them the truth. Kids are perceptive. If you’ve been acting anxious and on edge lately, they’ve noticed. Rather than let them wonder why mom and dad are working so much lately or constantly talking about money, explain (on their level) what’s going on in the family’s financial world. 

2. Explain to them how much things cost. Some parents are surprised to find out that their kids don’t have a very good grasp on what things cost. A great hands-on way to open their eyes is to take them on a “money tour” around the house. For example, kids might not understand that hot water costs more than cold water, or that bumping up the heat results in higher power bills. This exercise will teach them how they can conserve and thus help the family save money. You can also pile up all of the bills for the month and have them look at the amount on each one. Show them what the family’s cost of living is and again reiterate the areas in which they can play a part in reducing the costs. 

3. Realize that kids learn what they live. It may sound like common sense, but you—mom and dad—are your kids’ most influential teachers. When you ring up a barge-load of credit card debt, take out exorbitant mortgages or car loans, and fail to save anything, that’s what your kids come to see as normal. If you are modeling unhealthy financial habits, you can’t realistically expect your kids to “do as I say, not as I do.” 

4. Deprogram them. Kids are constantly bombarded with information about what things cost, whether it’s the fancy sports car they like or the wardrobe of their favorite athlete or actor, not to mention the 40,000 commercials that the American Academy of Pediatrics estimates the average American child sees each year. What they aren’t bombarded with is knowledge concerning how to manage money effectively. And while schools are increasingly incorporating money issues into the existing curriculum, the broader concepts of personal financial management still aren’t taught. Frightening though it may be, some schools rely on free “educational” materials from the likes of VISA and MasterCard. 

5. An allowance is a great teaching tool. You don’t have to break child labor laws to find great ways to help your kids earn their allowances rather than just have the money handed over to them. A well-implemented allowance program can mimic many money matters that adults face every day throughout their lives. From recognizing the need to earn the green stuff to learning how to responsibly and intelligently spend, save, and invest their allowances, children can gain a solid financial footing from a young age. 

6. Start them saving and investing early. It’s never too early to start saving, and the sooner you can instill the importance of saving money into your kids, the better. After they start earning allowances, have your kids save a significant portion (up to half) of their allowance money toward longer-term goals, such as college (just be careful about putting money in children’s names as doing so can harm college financial aid awards). Tyson recommends that children reserve about one-third of their weekly take for savings. As they accumulate more significant savings over time, you can introduce the concept of investing. 

7. Reduce their exposure to ads. The primary path to reduced exposure to ads is to cut down on TV time. When kids are in front of the tube, have them watch prerecorded material. You can direct the television viewing of younger children in particular toward videos and DVDs. And for older kids, if you use digital video recorders (DVRs) such as TIVO, you can easily zap ads. But when an ad does sneak under the radar and set the kids to begging, address it. Explain to your kids that there’s never a good time for frivolous impulse spending—but it’s especially harmful when money is tight. 

8. Find entertaining ways to teach good money habits. You’ll probably face an uphill battle when teaching kids about personal finance. That’s why it’s so important to find entertaining ways to instill good financial habits in them. For younger kids, Tyson recommends age-appropriate books like The Bernstein Bears Get the Gimmies. For late-elementary-school-aged kids, Quest for the Pillars of Wealth by J.J. Pritchard is a chapter book that teaches the major personal finance concepts through an engaging adventure story. You could also get them a subscription to Zillions, a kids’ magazine from the publishers of Consumer Reports, which covers money and buying topics. 

9. Teach them how to shop wisely. Family shopping trips, whether for groceries or something else, are likely to be your kids’ first encounters with spending. They’ll see you make decisions based on what the family needs, watch you use coupons when possible, and observe how you pay. These trips are a great time to teach them lessons about money and the value of product research and comparison shopping. 

10. Introduce the right and wrong ways to use credit and debit cards. Those plastic cards in your wallet offer a convenient way to conduct purchases in stores, by phone, and over the Internet. Unfortunately, credit cards offer temptation for overspending and carrying debt from month to month. Teach your kids the difference between a credit and debit card, explaining that debit cards are connected to your checking account and thus prevent you from overspending as you can on a credit card. 

11. Encourage older kids to get a job. An allowance doesn’t have to be the only way for your kids to earn money. Your child’s initial exposure to the work-for-pay world can start with something as simple as a lemonade stand. Depending on age, he or she might do yard work for neighbors or offer babysitting services. And the fact that we’re in a recession makes it all the more appropriate for older kids to “help out” by getting a part-time job—especially to fund unnecessary purchases like DVDs or cool clothing. 

Besides the learning opportunities it presents, there’s another positive to the recession, says Tyson. It forces families to be more thoughtful about how they spend their time—and this often leads to the stunning realization that money really doesn’t buy happiness. 

“Often, all those unnecessary things we buy for ourselves and our kids are simply distractions from the people we love,” he says. “They send the message that it’s necessary to spend a lot of money in order to have a good time. It’s not, of course. The best things in life—friends, family, quiet evenings at home just being together—really are free. Sometimes it’s good to be reminded of that.” 

About the Author
Eric Tyson, MBA, is one of the nation’s best-selling personal finance book authors and has penned five national bestsellers. His work has been featured and quoted in hundreds of local and national publications and media outlets. He was also a featured speaker at a White House conference on retirement planning.