Thanks to cherished family traditions like birthday celebrations and presents from Santa and the Tooth Fairy, today's children are often bombarded with gifts from an early age. In fact, many kids begin cashing in on their baby teeth before they've even grasped the concept of what money is and where it comes from.
According to a recent survey conducted by my employer, Visa Inc., 94 percent of children under age 10 are visited by the Tooth Fairy, reaping an average of $3 per tooth. By that standard and compared to what some of our neighbors give, my wife and I are relative cheapskates with a $2 bill for the first lost tooth and a $1 golden Sacagawea coin for each thereafter. (Fortunately, our kids haven't yet complained about the disparity.)
Like most parents, we wrestle with knowing how much is appropriate to give, as well as how we can best teach our kids to appreciate what they are receiving, whether it's a gift, a necessity (like clothing or braces) or the allowance they earn. Our goal is to share the joy surrounding the exchange of gifts while at the same time using those occasions as teachable moments that will help our kids learn how to manage their money in the future.
For example, our kids learned early on that whenever the Tooth Fairy visits or they get a birthday check from their grandparents, a small percentage goes to charity right off the top to help those less fortunate.
Another portion goes into their savings accounts to help them save for big-ticket items they covet. The rest is theirs to spend or save as they please. We try to allow our kids to make financial decisions and mistakes on their own in a safe environment before the stakes become too high. We'd rather that they regret blowing a birthday check now on a toy they'll soon forget than enroll in a cell phone plan they can't afford later on.
If your kids are too young to open a bank account, you can introduce them to the idea of dividing up their money for different purposes by using the Money Savvy Pig, a clear plastic piggy bank with four compartments (save, spend, donate and invest) that was created by Money Savvy Generation. It's also a good way for youngsters to learn about different coin denominations.
As your kids get older, start having discussions about:
- What earning money means, using your own job and their allowance as examples.
- How to budget for planned and unplanned expenses.
- Needs versus wants -- and the concept of delayed gratification.
If you need resources to help guide these money conversations, here are a few helpful financial education sites:
- You Are Here, an animated site offered by the Federal Trade Commission for 5th through 8th graders, which also contains a Parents and Teachers page with additional resources.
- Money Smart, a financial education program developed by the Federal Deposit Insurance Corporation that includes an eight-module, free curriculum for teaching young adults ages 12-20 the basics of handling their money and finances.
- MyMoney.gov, the U.S. government's website dedicated to teaching people of all ages the basics of financial education.
- Hands on Banking, a free, interactive program from Wells Fargo that teaches financial basics and smart money management skills, including dedicated sites for teens and kids.
- The Jump$tart Coalition, a national coalition of organizations dedicated to improving the financial literacy of kindergarten through college-age youth by providing advocacy, research, standards and educational resources, which offers hundreds of free and low-cost educational materials.
- Financial Soccer, a free, fast-paced, video game created by Visa and the Federation Internationale de Football Association (FIFA), which incorporates soccer's structure and rules to teach children and young adults the knowledge and tools they'll need to establish and maintain sound financial habits over a lifetime.
- Prepaid tuition plans, where you can prepay and lock-in future tuition at rates currently being charged by in-state colleges.
- College savings plans, where you contribute to an account whose interest earnings grow tax-free until withdrawn to pay for eligible expenses at any college or university. You choose among several investment options at varying degrees of market risk and reward.
And finally, remember that kids often mimic their parents' behavior, good and bad, so if they see you spending beyond your means to buy gifts, they may follow suit later in their own lives.
This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.
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