Teaching our children about money

Ebony, July, 1998

It's a parent's worst nightmare: Your 28-year-old has maxed out another credit card, defaulted on a car loan and is two months' behind on the rent.

"I just can't seem to make ends meet," laments your grown child. "Can I move back in with you?"

If you think your children would never do this to you, think again. More and more adults, many of whom are up to their ears in debt, move back in with their parents because they can't afford to live on their own. With per-social bankruptcies up 300 percent since 1980, schools around the country have taken the preventative step of requiring courses on money management. These days, it's never too early to start teaching your children how to handle money responsibly.

"Kids think, `I've got it good now, my mom takes care of me,' but they need to learn that later on in life they're going to have to fend for themselves," says Patrick Collins. headmaster of the Marva Collins Preparatory School in Chicago.

The foundation for responsible money management is a firm grasp on mathematical skills. As early as ages 3 to 5, children should start learning to add and subtract. Once basic math and fractions are fully comprehended, they are ready to understand the value of money. "We've got to keep our children from becoming a throwaway generation," says Collins. "They need to learn to value and take care of things."

Many parents are guilty of fostering this attitude when they quick]y replace broken toys with brand-new ones. Experts say that even if you have a large amount of disposable income, you're not doing children any favors by catering to their whims.

When your kids pitch a fit because they want an expensive toy, they need to understand that money doesn't grow on trees. "Wanting is just not enough," says Collins. "They have to make an effort to get those things." Let your children know that the money you spend to provide food, clothing and shelter is your reward for doing a job. "When you continue to reinforce that you work hard aid that it's hard to earn money to give them the things that they need, they will eventually get it," says Barbara Bowles, president and CEO of the Kenwood Group, a Chicago-based investment group.

At Collins Prep and other schools across the country, children are rewarded with "play money" for doing well in class. At the end of the week, students can purchase items with their play money in the school store. At home, establishing a regular allowance for your children helps them learn how to budget. "If parents consistently give their children an allowance, then children will ultimately become more responsible about money," says Bowles.

When a child has the freedom to make purchasing decisions, the temptation to spend, spend, spend can easily take over. "Don't let your children buy something just to buy something," says Collins. "Encourage them to save money until they can get what they really want, as opposed to buying the first thing that's there."

When your children learn to curb their spending, they can understand the importance of saving and investing. Bowles opened a savings account for her son when he started receiving gifts of money from relatives. "I wanted him to understand that it was important to not put the money in a drawer, because it wouldn't grow." She took him to the bank, where he applied for his own savings account and learned how the account worked.

Children start learning about the stock market in school, sometimes as early as fifth grade. On the home front, get your kids to follow the market by purchasing a share of stock in a company they can relate to, such as a toy manufacturer or fast-food company. Encourage your kids to check the business section of the newspaper to see how the stock is doing.

Experts say that parents should teach their children early about responsible economic habits. To reinforce this behavior, concentrate less on immediate gratification and more on the benefits of patient investing. Instead of buying a toy for a child's birthday, consider a piece of stock or a savings bond.

While it is important to learn economic responsibility, don't make your child feel paranoid and insecure about his or her financial future. Without forcing the issue, make sure your child has a realistic understanding of how the world works and the role money plays in modern society.

When you teach children about money at an early age and reinforce those lessons through adulthood, you can raise an independent, financially sound human being. "As they take responsibility for their own monetary concerns, relationship evolves," says Collins. Once these lessons are learned, parents can forget about any future financial duress.