Teaching Kids to be Wise Consumers

Teaching kids to be wise consumers requires that we have them reflect on their purchases…before they spend the money. And an easy way to do this is to teach them the Three Money Questions:

Do I need it?
Can I afford it?
Does it add value to my life?

Do I need it? This gives kids practice in thinking about the difference between needs and wants. If the item is clearly not a need, and for kids this is the majority of their spending, then at least they have acknowledged that they are pursuing and willing to plunk money down for a want. Which leads us to…

Can I afford it? This one is simple – if you don’t have the money, you can’t afford it. This is a good opportunity to help your child create a goal and work towards it.

Does it add value to my life? This takes time to learn. Most kids will insist that they can’t live without the particular item/experience and will move forward with their purchase. Revisit their decision after several days or weeks by having them reflect on whether or not their choice truly enhanced their life.

The key to the Three Money Questions is to model them with your kids. When considering a purchase, talk through the questions out loud so that your kids can “see” how decision-making happens. It may seem silly at first, but if we want our kids to learn how to problem-solve through a potential purchase, they’re going to need to hear how that happens.

If your child is considering an expensive purchase, a good strategy is to have her create a pros and cons list. This helps to clarify her thinking in a very visual way. And it’s an unbelievably wonderful tool that she’ll be able to carry with her beyond simple money purchases. Should I marry this guy or not? Let me make a pros/cons list. Okay, I’m kidding, but you get the idea. 🙂

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The Power of Relevance in Teaching Kids Money

Relevance is an unbelievable teaching tool. That’s because it’s much easier to learn something when it’s relevant to our lives. And, often, it’s more fun.

Consider a child studying a unit on growing plants in her third grade class. When the teacher starts talking about how healthy plants grow, her little ears perk up. This year, her dad put her in charge of he family vegetable garden, so learning about soil, watering, and weed control was meaningful to her; it had become relevant to her life.

The power with relevance is that it establishes a purpose for the learning. And when things have purpose, the learning becomes more powerful. So if we can connect the learning that kids are doing to their every day lives, in other words, if we make it relevant, then deeper learning and understanding will take place.

The Money Connection: If we want our kids to learn about and understand money – how to save it, share it, spend it, and invest it wisely – then we need to find a way to make it relevant to their everyday lives. And the best way to make it relevant? Give them the responsibility of managing their own money.

When they’re in charge, all of a sudden, learning how to effectively manage that money becomes meaningful and, by default, relevant. If they want to buy that really cool cell phone, then learning how to create a personal financial goal becomes relevant. If they want to invest in their favorite clothing company, then researching the company has now become relevant. And if they expect to save enough money to bring with them on vacation, then learning how to make good spending choices has become relevant.

When it comes to teaching kids about money, there’s no better lesson than to use the power of relevance. When it’s your money, it’s not that important. When it’s theirs, it’s a whole new story. And this story has a happy ending.

Yippee! I’ve Got Money! A Letter to Teens

I was asked to contribute an article to a book being published on kids and financial literacy (will share more on that later). Apart from being thrilled to have been asked, I happen to love writing, so I jumped at the chance. My given topic was ‘kids and budgeting’ and is a little longer than I usually post. But I think you’ll find it easy to read. Here we go:

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Nice. You’ve got money. And if you’re like most teens, the first thing that comes to mind is to take that money and spend it. That’s reasonable. After all, you worked hard to get it. You did work hard to get it, didn’t you? But before you call all your friends and set up a date with the mall, ask yourself one question. Do I want to think like a millionaire or do I want to think like someone who lives with mom and dad when they’re 30?

You’re pretty savvy, so my guess is that you chose to think like a millionaire. Good. Because you’re going to learn some important stuff that will allow you to build wealth so that you can have and do the things you want. But always keep one thing in mind. Being rich in money is nice, but it’s also important to be rich in friends, compassion, knowledge, generosity… Then, being rich in money is so much more meaningful, for you and others.

Okay, we’ve got priorities straightened out. Now let’s get to the thinking-like-a-millionaire part. Most millionaires become millionaires because they are savvy in the art of managing their money. And the first thing millionaires do when they manage their money is to pay themselves first. It seems like a silly thing to do since the money is already theirs, but paying themselves, or in this case, yourself, first simply means that you are going to take some of your money and sock it away into savings. Then leave it there. No touchy the money. You’ll see why this is important in a minute. So decide, right now, how much of your money you will put into savings each month. A lot of millionaires started by putting aside 10% of their income. But you decide what works for you right now. You can always add more later.

Okay, pay myself first. Check.

Next, it’s always a good idea to share a little of what we have. Some like to give to their church, others like to donate to causes that are near and dear to their hearts. Whatever you choose, decide how much you want to give and how often you will be giving. It’s often easiest if you do it monthly, similar to how you put money into savings. And, hey, your parents may even be willing to match your donating dollars. They like it when they see you doing things to help others. So ask them.

But does that mean that you have to give money? No. Giving of your time and energy is just as valuable. At some point, though, maybe when you’re earning just a little bit more, you’ll want to re-visit this and make a commitment. Either way, you’ll discover a very important thing. Sharing makes people happy. And being happy is contagious. So share. It’ll make the world a better place.

Share time or money. Check.

Now, since you are a millionaire-in-the-making, you need to figure out where your money is coming from and where it is going. In other words, you’re going to track your income (money in) and expenses (money out). It’s going to take one month to gather enough information to be able to see patterns in your habits, so grab a notebook, use KidsSave or print out a recording sheet by visiting here and start recording. Every single penny you spend or bring in gets recorded. Yes, I know, it’s a hassle. But it needs to be done. Think: millionaire.

Then, when you have one month’s worth of data, look for patterns in your spending habits. If you like, you can create categories using colored pencils. (If you used KidsSave, print out your registry.) Items like soda, chips, and gum would go in a ‘snack’ category and can all be colored, say, yellow. Video games, itunes, and that new Wii controller you just bought would go in an ‘electronics’ category and colored…red. You get the idea. Expenses that are the same each month like your cell phone bill, remain in their own category. They are fixed expenses. And remember your charity and automatic savings? Consider those fixed expenses, as well.

Add up the totals for each of your expense categories. Then add up all the categories in expenses. That’s about how much you spend each month. Next, add up all the categories in income. That’s about how much you bring in each month. Subtract expenses from income. That’s how much money you have left over. No, duh. Want more money left over? Keep reading.

Keep track of my income and expenses. Check.

Okay, so you’re interested in ending up with more money. The good news is, it’s not that hard to do. And it can make a huge difference in whether or not you reach millionaire status and how quickly you get there. Here’s how.

Go grab that list of expenses you carefully recorded for one month; it’s time to take another look. This is where it can get interesting, so hang on. Choose one of the categories, like electronics, and look at the total amount you spent during that month. Now multiply that number by 12. That’s about how much you can expect to spend on electronics for the entire year. Do that with the other expense categories. Pretty eye-opening, huh? Time to reduce spending?

Start by taking a real close look at all the things you spent money on. Not happy about blowing a bunch of money on snacks at the mall? Great. Stop doing it. Wish you hadn’t bought those funky sunglasses that you never wear? Then think twice about putting out money for things you don’t really need. Not that you don’t get to have some fun with your money. Treating yourself is important. Just be aware of where your money is being spent. There’s a saying that goes “It’s better to tell your money where to go than to ask it where it’s gone.” So pay attention.

Alright, reduce spending. Check.

Okay, are you sitting down? Because this is the part where I bring up the ‘B’ word. Adults do not like this word. A lot of them even cringe when they hear it. But you’re not afraid. You’re a millionaire-in-the-making which puts you into the tough category.

Deep breath.

Budget.

Budget? Yup, budget…a plan for your money. It’s hard to become a millionaire without one so let’s just hit it straight on. Besides, when you see what’s really involved, you’re going to wonder why so many adults haven’t taken the plunge.

The first thing you need to do is track your income and expenses. Done. Then you need to create income and expense categories. Done. Next, you need to subtract your expenses from your income. Done. OMG! The budget’s done. No kidding. You just need to make sure that you’re meeting all your objectives of saving and spending carefully and that, then, pretty much sums up how to create a budget. Sheesh, what’s up with these adults?

Create budget. Check.

So, when you created your budget you discovered some extra money. Money that was left over after you subtracted your expenses from your income. Beautiful. Now we get to the fun part, the building-wealth-to-become-a-millionaire part. The part where you learn how to make money work FOR YOU, instead of you working for it.

Remember that pay-yourself-first money you’ve been saving? Here’s where it comes into play. You’re going to take that money along with the extra savings you just found in your budget and begin to invest it. But here’s the deal. The money you invest is money that you won’t be able to touch for awhile. I’m talking several years. In fact, the longer you can leave it alone, the better. Let me give you a quick example.

If you started saving $100 every month when you were 18 years old, and you invested it where it received 6% annual interest, by the time you turned 65 you would have $313,187. If you did the same thing but were receiving 10% annual interest, you would end up with $1,281,919. The secret is something called compound interest. Compound interest is money that grows on itself. Remember Einstein? Pretty smart, right? Well Einstein knew how special compound interest is. He called it the greatest force in the universe. Over time small amounts of money become large amounts of money. And if you keep making contributions while not touching any of it, yowza, it’ll take off like a bat out of H – E – double hockey sticks. Sick.

And what should you invest in? Lots of things. The key is to diversify. That’s when you divide your money into different investments. CDs and bonds are a good place to start. I also recommend mutual funds. When you’re ready you can begin investing in individual companies in the stock market. And maybe one day you’ll move on to real estate. But do your research first. Always do your research. http://Www.bankrate.com and http://www.fool.com are great places for that.

Begin my investing portfolio. Check.

Well there you have it. You’ve just set yourself up to become a millionaire. You are in control of your financial future. How cool is that? It’s very cool because that puts you into an elite group of people. A group of people with a millionaire mindset. You’re on your way to great things. Keep focused. Know your goals. Follow your dreams. Go get ‘em!

The Cell Phone: A Powerful Learning Tool

There was a huge graphic of a cell phone on the front page of the Sacramento Bee this morning. It was all about the love affair tweens and teens have with their cell phones confirmed in a study by Pew Internet and American Life Project.

If you have a tween or teen, this is not front-page news to you. But I thought it the perfect opportunity to re-print here a section from Raised for Richness, my parent kids and money primer:

Parents have been handed an unbelievable tool to help teach their tweens and teens money management. The cell phone. Yup. That object of love and hate. Done correctly it becomes an object of learning. Here’s how.

Teens need to stay connected to their friends. This is normal as they figure out their place in the world. Cell phones keep them connected. Using their “need” for a cell phone as the motivator, we can teach them basic money management skills such as budgeting, paying bills, and living within your means.

First, tweens and teens need to know that along with a cell phone comes responsibility. Keeping track of your cell phone, resisting the temptation to text during dinner, and paying your phone bill. Kids paying bills? You bet! And the best time to teach them is while they’re still hanging out with you. At least you’re not going to turn the heat off on them!

Next, it’s important to establish what part of the phone bill your child is responsible for. For example, you may pay the family plan fee but maybe your teen pays the additional phone line fee, texting, and any upgrades. If your child is old enough, you can even see if the bill could go go directly to her.

If you haven’t set up an allowance yet, this is the time to do it. Most kids don’t have jobs so it’s important to get money in their hands for the purpose of learning how to manage it. You can tailor the amount of allowance based on the responsibilities that come with it.

Now comes the fun part. Kids learn to manage their money in the context of something they love…their cell phone! Upgrades? They pay. Overages? They pay. New phone? They pay. Lost phone? They pay. Unpaid bill? No phone. See how simple it is? Okay, so it’s going to take a few months before everyone understands how the whole thing works, but when that happens, it’s a thing of beauty. Kids are happy; as long as they pay the bill, they stay connected to friends. Parents are happy; their kids are learning real life skills. It’s another win/win.

You may even find that your kids become pretty savvy consumers. Just how important is it to have the latest phone with all the gadgets? When it’s their money on the line, the difference between needs and wants takes on a whole new meaning! And that got-to-have-phone may be the perfect time to introduce them to the idea of setting a financial goal.

It’s true that some parents feel the peace of mind that comes with a cell phone is worth paying for the phone themselves. But wouldn’t you also want the peace of mind knowing that your child is ready to take on the financial challenges that await her out there? Don’t miss this silver-platter opportunity. With tweens and teens, they’re few and far between.

What are your thoughts?

Is It Worth It?

Ryan just spent $204.44. He didn’t do it lightly. That’s because he knows just how long it took him to earn that money. His one-day-a-week paper route earns him $11/week. That’s 19 weeks of folding and throwing papers.

But he also gets $10/week in allowance. Enough to help him get some of the things he wants, but not everything. (That explains the paper route.)

With the allowance, his total time was reduced in half. To a 15-year old, that’s still a long time. The good news is, he had the money saved already. But knowing the work hours needed to spend the money is a good way for kids to understand the value of the dollars they’re considering spending.

Ryan came in to my office this morning wanting to know whether he should buy an iTouch, which was $180 (minus shipping). I had no idea he was considering this; I don’t even know what an iTouch is. But Ryan rarely spends his money, so I was glad to see that something had piqued his interest.

“What are the pros and cons of getting the iTouch?” I asked him.

We set out to make a list. This is an excellent way to have kids think through a decision.

His pros:
-the iTouch can use lots of apps
-30 hours of battery (his current iPod is so old he only gets one hour of use out of each battery charge)
-it’s more stylish
-it holds 8 gigs

His cons:
-the $180 cost (he told me this counted as two cons)
-he already had an iPod
-he doesn’t really need the 8 gigs

I was leaning towards having him buy the iTouch but I didn’t want to make the decision for him. Then he throws out, “Or I could get the iPod nano fifth generation which is $60 cheaper.”

He said that he wouldn’t be able to have the apps on the iPod.

“You really like playing games,” I reminded him and his eyes lit up.

“That’s like the main thing,” he replied. That’s when I knew it was the iTouch or nothing.

Letting go of money can be just as hard for some people as saving money is for others. Teaching kids this balance is important. I couldn’t stand it any more.

“Buy the iTouch,” I said. “You’ve worked hard for the money and deserve to spend some of it on something that you’re going to get a lot of joy using.”

Within five minutes I received an email from eBay for the purchase of an APPLE IPOD TOUCH 3RD GEN 8 GB MP3 PLAYER WI-FI + BONUS.

I’m not sure who is more excited about the purchase. Saving money is good. But knowing how to spend it wisely is just as important. I’m glad to see that Ryan is developing this healthy balance.

Dinosaur: A Very Large Dog with No Fur

I was participating in a webinar yesterday about kids and money. And by ‘participating’ I mean ‘listening’. That’s because I was cooking dinner at the same time.

The experts were a certified financial planner and an executive director in retail banking. They both had good things to say about kids and money. For example, they endorsed giving kids an allowance for the purpose of teaching kids how to effectively manage money. I’m all over that.

But, as someone with a child development background, I’m always amused…okay, I’m actually always annoyed, when adults try to take “big” words and simplify them for kids. For some reason, adults think they’re making things easier for kids.

Let me give you an example. When I taught elementary school, it bothered me to no end that math textbooks called 3 + 2 = 5 a ‘number sentence’. What the heck? It’s an equation…both sides of the ‘equal sign’ have the same value. What do you mean, ‘number sentence’?

Actually, I know exactly what they mean. Adults think that since kids are learning about writing sentences, they learn that a sentence needs to be complete. Beginning, middle, and end (or, if you prefer, subject and predicate). They think that kids can make the connection between what they’re learning in language arts and math. Oh, I get it. It’s a number sentence…just like when we write sentences during writing centers.

And maybe kids do make the connection. But why not just call an equation an equation?

I did an experiment when I was working twice a week in a K/1 classroom. I started to call all the ‘number sentences’ equations. At first, it was amusing to hear the kids try and get the word out of their mouths. But it didn’t take long for that to happen and pretty soon an equation had become an equation.

So here’s my issue with last night’s webinar (which otherwise I thought was pretty good). The experts were using the terms ‘money in’ and ‘money out’ to help kids understand what deposits and withdrawals were. I don’t have a problem with that as long as the “helpful” words are tied to the real definitions. In other words, if you say to kids, “To buy that, you’re going to need to take money out, withdraw money, from your account.” Eventually, the words ‘money out’ and ‘money in’ are dropped.

But I never heard the words ‘withdraw’ or ‘deposit’. So at what point do these experts think we should begin calling a deposit a deposit? And, to potentially add to the confusion, ‘income’ and ‘expense’ could also be considered ‘money in’ and ‘money out’. Now what?

We don’t help out our three-year olds by calling dinosaurs ‘very large dogs with no fur’. We call them dinosaurs and they manage quite nicely.

So let’s call it what it is. And you may be pleasantly surprised at how well they can handle it.

Tapping Into Kids’ Desires to Be Grown-Up

One of the best ways to teach kids anything is to get them actively involved. Take check writing, for instance. Although most of us have turned to online banking as a way to pay bills, there are times when the only way to get money to someone is through a check. This actually happens a lot to parents: soccer sign-ups, picture day, fee for art class supplies, field trips, and on and on.

So the next time you find yourself pulling out your checkbook, instead of you filling in the information, have your tween or teen do it. Of course, the signature will still need to be yours.

And here’s something fun. Have your child practice his/her signature. Tell them their signature is unique and is an expression of who they are. They’ll be using it on many important documents, like checks, when they’re older. Practicing their signature makes them feel grown-up. Let’s tap into that to teach them an important life skill.