Teach Kids to Set Financial Goals – Video

Here’s the next in my Kids and Money video series:  Setting Personal Financial Goals

How Does a 15-year old Save for a Car?

Ryan just bought a car. And she’s a beauty, too. 2002 baby blue Toyota Prius with only 57,000 miles. Owned by a 91-year old grannie who used it mostly to drive to church and back. No kidding. Problem is, Ryan can’t drive it; never mind he doesn’t have his license. He barely has his permit. And taking an online course to get his permit happened after he bought the car.

How does a 15-year old with no permit end up with a pretty snappy car sitting at the bottom of the driveway? It starts with a plan.

When Ryan was 11 years old he got his first job. He delivered papers once a week after school. Most of that money went directly into his savings account. Although he was responsible for all his discretionary spending, there wasn’t a whole lot he spent money on. John and I customized his interest rate (KidsSave was a great help in this area), so that the more he saved, the more he ended up with. This was a great incentive. But an even greater incentive was the offer his grandmother gave him. She would match him dollar for dollar on his first car.

Over the years he added soccer reffing, teaching math centers, and yard work for our neighbor to his list of jobs. He also did the occasional lemonade and root beer float stand. Then there were his buys and sells on ebay. Again, most of it went into his savings account. Although I have to mention here, just in case you may think he never enjoys spending money, he bought his own $350 mountain bike, an ipod touch, golf clubs and other pretty pricey items. He knows when to save and he knows when to spend.

But my main point is that, when you have a goal in mind, when you know what you want and have figured out the steps to get there, it’s easier to keep your eyes on the target. That’s the power of goal setting. It keeps us focused. Even when you’re eleven years old.

Four years later the perfect opportunity presented itself. We live near a community college which doubles as a used car lot on the weekends. Nathan and Ryan, just playing around on the computer one day, discovered that a used Prius would be on the lot. A Prius is exactly what Ryan wanted. He’s my little eco-friendly kid.

The stars seemed to be aligning for him. About six months ahead of when he had planned on buying a car, it was an opportunity not to be missed. An opportunity on a variety of levels. This was his first major negotiation and he wanted to do it himself. So John and I prepped him. He needed to know exactly what his maximum offer would be. Start low, move up.

The owner, through her grandson, was asking $10,000. Ryan went in at $8800. They came back at $9200 which was exactly what Ryan had hoped. He had just made his first deal.

After registration and taxes, the total came to $9796. Split with his grandmother, Ryan’s share was $4898. He paid in cash. That’s how a committed 15-year old buys his first car.

Teaching our kids to set personal financial goals when they are young is so important. It starts with the little things…a video game then a bike then an ipad. They learn it’s possible and begin saving for the bigger things. To see how it’s done, check out this video:

How To Encourage Kids to Save Money

This is the first in a series of Kids and Money Quick Tips videos that I will be putting together. This first one is on getting kids in the habit of saving money.

Registry Reflections

Nathan and I were “KidsSaving” his recent transactions yesterday.  That’s when we reconcile his bank statement with his KidsSave Account.  But it’s also when we make sure that his recent charity contributions or other expenses, get recorded.

He looked at the balance of his bank statement with wide eyes and said, “That’s all I have in the bank?”

It was over $400 so I was a little surprised at his concern.

“Haven’t you been keeping track in your registry?”  I asked.  He got a checking account this past summer so he’s been making more transactions than appears in his KidsSave Account.  As someone who teaches personal finance to kids, you can be sure I went over the importance of keeping a running record in the registry. 

He wasn’t.  And I knew that, but after reminding him several times to keep track, I decided to wait for him to learn his lesson on his own. I was hoping it wouldn’t be an expensive one.

It wasn’t.   But the scare he got seeing his “low” balance (he had deposited over $300 recently and it wasn’t reflected in his statement) made him a believer in registry recordings.  At least, it did last night.  We’ll see if he follows through, otherwise, it still may end up being an expensive lesson.

5-Year Olds DO Get It

I had the pleasure of a phone conversation with my 5-year old niece, Olivia, the other night.  We were chatting about her first weeks in Kindergarten.  Apparently, Ian had brought in a pretty nifty coin collection because she talked about it for about a minute, which, if you know anything about five-year-olds, is a pretty long time for any one topic!

So that led to a discussion (albeit, short) on money.  I asked her what she knew about money.  “You buy stuff with it.” 

“If you could buy anything you wanted, what would you buy?” I asked her.

“Bubble gum, candy, and toys,” she replied.  Hmmm, I was thinking.  Time to get her mom to put her on an allowance program using KidsSave.

I knew I didn’t have much time left with this topic so I if I was going to only get one more question in, this was it:

“Do you save any of the money you get?”

The answer was priceless (pun intended!).  “Yes!  One day I want to be rich.”

And there it is.   Five-year olds know what money is for, they know it’s important, and they know that if they want to be rich, they’re going to have to save some of it.  And just when I was going to ask a follow-up question, she says, “I’m done talking about money.  Let’s talk about Halloween.”

Have a Spender? Give Them Strategies

“Uh oh,” said Gabby after tallying the Are You More of a Savor or a Spender? questions during my 5/6 money class yesterday.  She had answered every single spending question with a ‘yes’ which translated to: she liked to spend.  Hanging at the mall, well that was paradise.  And she’s only 10 years old.  

A lot of parents don’t realize the potential problem in their kids’ spending habits because, hey, they’re just kids and what kid doesn’t like to spend?  Kids who really like spending money when they’re 10 will probably grow up to be adults who really like spending money.   And if not kept in check, it could lead to serious problems.

Time for intervention.  What Gabby, and a lot of other kids and adults need, are strategies for their shopping trips.   These will help her when she finds herself surrounded by temptation.  (The first big hurdle, recognition, was discovered when she took the survey.) 

Here are some strategies we came up with:

  • Carry a limited amount of money when out shopping.  When the money’s gone, it’s gone.
  • Never borrow money.  In fact, make sure your friends know not to loan you money.
  • Shop with a list.  Never buy anything that’s not on the list.  
  • Follow the 24-hour rule.  Wait 24 hours, (some may need longer) and if you still really want it and you have the cash, then go for it.
  • Keep a record of what you buy and what it cost.  At the end of the week/month go over it.  Rate each item on a scale of 1-10, 10 being you would buy it again.  Make a concerted effort not to buy anything that was rated under 5 or 6 again…or at least, not for awhile. 

Now that Gabby has some strategies, she can head to the mall armed and ready to keep her spending under control.

But parents, you can play a role, as well.  Teach your kids the value of saving their money.  One way is by using KidsSave to introduce them to the power of compound interest.  That’s what worked for our youngest son.  When he realized he would end up with more money without adding a single penny, he was a believer.

Another way to encourage them to save is by setting up a little 401(k) plan and matching their deposits by a given amount.

Bottom line, most kids don’t know how to save and spend wisely unless we teach them.  And reaching the spenders early will not only benefit them but you as well.