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player ready...Parents, please note: Unless they’re for preschoolers, potbellied piggy banks are passe.
Kids have become more sophisticated when it comes to saving money. They want to deposit their allowances in savings accounts, mutual funds and individual retirement accounts because pigs don’t compound interest.
Even if money management isn’t exactly something you’ve grasped until recently, don’t worry: There are plenty of tools designed to help guide the decisions you make with your pint-sized investor.
Kids start to grasp the idea of money around age 3 or 4, said Todd Gillingham, a financial planner with the Minneapolis-based Lutheran Brotherhood, a non-profit financial-services group. The father of 5-year-old twin sons speaks with professional and personal experience.
When children start saying “I want” when they go to a store, you’ll know it’s time to start talking to them about money, he said.
Pamela Hughes, a senior financial consultant in Merrill Lynch’s Seattle office, agrees. “You know at that point that they’re receptive” to learning about money, she said.
Unless the children have received a substantial amount of money as a gift, a piggy bank is still an appropriate place for 3- and 4-year-olds to keep their savings, Hughes said. She suggests parents help their children find pictures of the toys or items they want to save for, then tape them to the side of the bank. That gives them a reminder of why they’re saving money.
Schools also have started to teach financial lessons at an earlier age. In the past, kids didn’t learn grownup ways to handle money until they wrote mock checks in high school home-economics courses. Now, children are learning about stocks and bonds in the third and fourth grades.
Nationwide, thousands of children from grades 3 to 12 participate in the annual fall and spring sessions of the National Stock Market Game, which is creating a crop of young Wall Street watchers who probably have read more annual reports than most adults. The students invest pretend money in real stocks; the team whose portfolio has grown the most after 10 weeks wins.
“Kids are getting more sophisticated and understanding that saving is a necessity,” Gillingham said. Past generations had to learn to manage money through trial and error.
Hughes suggests parents draw a bar chart on poster board for children who have savings accounts. Place a picture of what the child’s goal is at the top, and each time a deposit is made, the child can fill in the chart and see how close he or she is to attaining it.
For the long term, financial advisers suggest that parents help their children invest in a mutual fund. Many programs allow investors to buy mutual-fund shares in allotments of $50 or more if a higher initial investment is made either from savings, earnings or a gift, Gillingham said. With a mutual fund, children can learn about the companies they are investing in and various industry sectors.
Parents also might consider opening a joint credit-card account with their teenagers. However, financial advisers suggest doing this with caution. Parents may want to allow credit-card privileges only if their teenager pays off the charges each month, Gillingham said.
Before setting up a youth savings program, parents should examine their own money values, financial experts say. How much do they save? How much of the family’s income is given to charity? Are household budgets blown on blockbuster movies and “toys”?
If the parents’ finances are handled properly, children won’t pick up the wrong signals, Gillingham said.
It’s also important for parents to talk to their children about how their paychecks are earned, where the money goes and the various bills and taxes they pay.
When you’re purchasing a big item, such as a car, bring your child along so he or she can learn how the transaction is made. It’s educational for them to see you research various choices and negotiate the deal.
Parents need to help children identify short- and long-term goals, and then create a plan to meet those needs. Some financial advisers believe it’s easiest for children to save in thirds–for instance, one-third of an allowance can be used immediately on whatever they choose, such as candy or clothes; another third can go toward a short-term goal, such as a compact disc player or video game; and the final portion can’t be touched until they reach their final goal, such as entering college or buying a first house.
SOME HELP FOR PARENTS
These books can help parents teach kids about money:
– “The Totally Awesome Money Book for Kids and Their Parents,” by Adriane G. Berg and Arthur Berch Bochner (Newmarket Press, $10.95). Designed for readers age 10 to 17. Berg, a financial expert, and son Arthur have compiled various games, stories, riddles, charts and drawings about money. They discuss saving, investing, borrowing, working and taxes for kids.
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– “The Money Book and Bank” by Elaine Wyatt (William Morrow, $11.95). Wyatt provides helpful hints for kids on earning, budgeting, banking, spending and saving money.
– “A Penny Saved; Teaching Your Children the Values and Life Skills They Will Need to Live in the Real World,” by Neale S. Godfrey (Simon & Schuster, $18.95). Designed for kids from preschool to high school, this book includes various games, worksheets and quizzes on saving money.
– “Saving and the American Family — A Basic Money Management Guide for Parents and Children,” and “Time to Save–A Teacher’s Guide,” by Merrill Lynch, free. To request copies of the 14-page guides, call 800-333-4858.
– There also are helpful Web sites. Try http://pages.prodigy.com/kidsmoney, which has links to help parents and children learn about money.