Friday, June 7, 2013

Q&A Series – Kids and Money

This week’s question comes from Julie, a client who has small children and would like to start instilling the value of money in her children.

Q. Do you have some strategies for teaching my kids about money?

Children are wonderful, most of the time. I have two young daughters – Harper is 3½ and Lucy is 1½. Harper has shown some interest lately in accumulating her savings. Now, I’m not sure how to categorize her instincts, but on an almost daily basis, she checks the top of Mom and Dad’s dresser for loose change. If she happens to score, she promptly grabs the change, runs into her room, and deposits the loot into her piggy bank – a somewhat brazen savings scheme, if you ask me.

It’s almost never too early to start working with your kids at helping them to understand money. At 3½, Harper might be a little young to grasp the more complicated concepts, but she likes to count. We introduce the comparison between the different coins and their values. And of course, we can help fill up her piggy bank as she saves for a special toy or treat. Finally, we remind her that these coins are earned when Mom and Dad go to work every day. Hopefully, these building blocks towards financial literacy will provide a basis for understanding money and its value.

As kids get older and start school, you can introduce an allowance and financial incentives for helping out around the house. Introducing the connection between work and money is a concept kids can catch onto quickly. Paying children an allowance will encourage them to save and accumulate for something they really want. The hardest part for some parents – especially Dads with endearing little girls – is to withhold purchasing the item until the child has actually made the effort to save for it.

For older children, budgeting becomes more important as children bear more responsibility for their financial transactions. Budgeting can help develop spending discipline. Certain funds might be earmarked for weekly fun, like grabbing a burger with friends or buying electronics and video games. But a budgeting can even include saving for necessities like clothes or transportation. Budgets can even include a charitable element. But other funds can be earmarked for longer term goals like buying a new bike, perhaps a car, or even saving for college. This is a great time to introduce concepts related to investments and saving. Savers young and old can be encouraged by the idea of building a savings account and the idea of compounding investment returns.

Finally, as children move towards young adulthood, they should be encouraged to handle their own checking accounts, which will surely include ATM and debit cards. They will learn about the various fees associated with having a checking account and using the ATM card. Credit cards may be an option and is definitely a subject to be discussed, especially for those kids just starting college or going out on their own. Roth IRAs and traditional IRAs may also be appropriate for teenagers and can be good tools for encouraging retirement savings early in life as young adults embark on their careers.

Talking to children about money won’t keep them from making any mistakes. Some significant messes are worth cleaning up, but some smaller stumbles might be good learning experiences and teachable moments. But talking to your kids about these issues will hopefully help your kids stay out of financial trouble more often than not.

In a nutshell, parents don’t need to be money gurus to teach (and practice) financial-literacy skills to their children. Kudos to you for starting your kids to be financially savvy at an early age!

We encourage our clients and readers to send us questions for our Q&A series at And as always, we hope you will keep Rollins Financial in mind when seeking professional advice on financial planning and investing.

Best regards,
Eddie Wilcox, CFA

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