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Senior Correspondent

This all started with the travel stories a father by the name of Newell Hendricks told about when he took his girls to Florida on Spring break.

“The girls made what amounted to a handwritten spreadsheet in their notebook, so we knew each day what we had budgeted for each category, and we kept track of how we were doing.  I kept asking questions like “How does our total money budgeted so far match up with our total spent?” and then asking them to look in my wallet to see if I had the right amount of money left.

I’d ask them to figure out if it made sense to go five miles out of the way to buy gas if it were three cents a gallon cheaper.  I’d ask which days we were better at meeting the budget, the travel days or the camping days.  It not only took up most of the time we were riding in the car, it got them very conscious of how we spent our money.

We would stop for gas and instead of asking me if they could have ice cream, they would look at the budget to decide if we could get it.  We put ice cream under entertainment, like my coffee.  Then they got the idea of going to Disneyworld!  We looked up the price.  I said. “Sure, if we can stay within our budget.”

They realized ways that they could save money, like eating beans and rice at the campground, and peanut butter sandwiches for lunch.  They realized that buying drinks at a restaurant was a total rip off.  I made coffee at the campground instead of going out for it and, even though pumping up the stove always woke them up, they thought it a good decision.

In the end, they did it.  We went to Disneyworld.  I really don’t remember much of the day, but it was a big deal for them and they made sure they enjoyed it to the fullest.”

One look at the $1.1 trillion in outstanding student loan debt, the $845 billion credit card debt and the 3.9 million foreclosures suffered in the U.S. tells us adults don’t know much about money.

Making matters worse, women today continue at a basic disadvantage in long-term financial preparedness, because their incomes are still less then men’s, they live longer and they take time off to raise families.  That makes their financial illiteracy intolerable.

It’s time to break the cycle:  to be able to lead financially healthy lives, girls need to be taught the basics of money—and beyond.

How Parents Can Help

Parents are the number one influence on their children’s financial behavior.  Kids are watching all the time, directly or indirectly absorbing how parents handle the family money.  Most important, good financial practices have nothing to do with the amount of money a family has; it is all about what the family does with the money it has.

Children should see their parents (especially their mothers) handling everyday finances like paying bills on time, calculating family taxes and discussing investment options.  Large purchases should be discussed openly, so the children can see how decisions are made.

Open Savings Accounts

By age 3 to 5, children can already learn that you may have to wait to buy something you want.  Use jars marked “Saving,” “Spending” and “Sharing” to keep the process very visible.  Count money whenever anything is added and measure how close or how far they are from whatever goal they’ve set.  Remember that the younger the child, the more limited her or his concept of time will be.

Once they’re old enough for off-site money, it’s time for interest-bearing accounts so they can start learning the concept of compound interest.  (Otherwise it’s a tough concept to explain.)  Online accounts are easiest to set up and balances can be checked regularly.  Consider a matching-funds program, matching their savings 2-to-1or 3-to-1 as an incentive to save for larger purchases.

Where children get the money for such accounts is a very individual decision, whether the parents believe in an allowance or in paying for chores.  In any case, there should be a savings component to any money accumulated.

Look for Money Groups 

To get past any “taboos” about money in the family, look for available money groups or start one yourself.  Have maybe a half-dozen similar-aged kids and their mothers (or fathers) meet once or twice a month.  Start with Money 101 targeted to their age.  Set up projects, such as:

  • discussing and defining a short-term goal for each child and planning how to save the money; or
  • holding group garage sales to sell toys they’ve outgrown so they can buy other things; or
  • having parents openly share their money stories about what they learned as kids, their money fears and mistakes they made.

Teach Them to Research

On big ticket items, whether it’s a product or something like a trip, involve kids over 9 or 10 in the online research.  Let them show you their information-gathering skills.  Set the initial parameters for the purchase together.  Show them how to budget for that item, how to make the best decision and then involve them in the actual purchasing experience.

Make Retirement Real

One of the greatest problems young people (especially children) have is being able to relate to something as far off as retirement.  As they get into their teens, one valuable exercise is to help them visualize that someday they too will be older and will need retirement funds.

An effective tool is to have childhood photos of yourself and of any relative they know (aunts, uncles, grandparents, great-grandparents).  Gather pictures of the same people as adults (especially anyone of retirement age) and set the young and old photos side-by-side.  By seeing that young people become the older people they know and love, that should break the resistance around “Oh, I don’t have to worry about that; I’ll never be that old.”

Another effective step is an online “aging” tool that uses a webcam, the person’s present age and gender, called Merrill Edge Face Retirement.  Seeing what they’ll look like at retirement age makes that prospect that much more real and saving at a younger age becomes more meaningful.

Talk About Retirement

To reinforce the concept that retirement savings are part of lifelong financial planning, talk openly around teenagers about the different ways money can be saved for retirement.  Make terms like “401(k)” and “Roth IRA” familiar, and reinforce how important it is to start saving about 10 percent of pre-tax income early in life so there is no pressure to catch up in later years.

Share what you’re doing to take care of yourself in retirement, and how any college expenses will be handled.  The goal is to get a dialog going around all aspects of money and to end the financial illiteracy that has led to so many poor decisions around money.

And in doing so, you’ll guarantee their financial futures.  (As Newell Hendricks was doing for his daughters.)

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