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Family Finances

A Kid's Eye View of Money

I talked to a group of middle-school children about credit cards, spending and jobs. What they knew -- and what they didn't -- was eye-opening.

Editor's note: This article is adapted from the book, Raising Money Smart Kids. Buy a copy for even more great parenting advice.

As part of my research to get a glimpse into kids view money, I spent a day having a wide-ranging discussion with a group of middle-school students. We talked but how they spend money and how they save; what they want to be when they grow up and how much they think they'll earn; which commercials they like and whether they actually buy the products.

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My sample wasn't scientifically selected, but it did represent an ethnically and economically diverse group of kids in a major urban area. And early teens have certain advantages as subjects: They're old enough to know something abut money but no so old that they think they know everything.

On most of the topics we chatted about (the stock market being the notable exception), the youngsters had a good grasp of basic money-management skills-up to a point. For example, they knew enough to be wary of credit cards but were a little fuzzy about what evil fate would befall them if they neglected to pay their bill in full each month.

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The good news for parents and educators is that it wouldn't take much to fill the gaps in kids' knowledge. For example, the children knew they would be paid interest on a savings account, but they had never heard of dividends paid to investors who own stock in a company. So a few simple definitions would go a long way. Using examples and calculators to illustrate how fast money grows or how long it takes to pay off debt will be more effective than a lecture on the evils of borrowing or the virtues of thrift. Many youngsters admitted that they took buying cues from their peers. But they were open to a discussion on how to resist peer pressure.

Let's listen to the kids (with asides from me).

On spending

If there's anything kids like to spend money on, it's clothes -- often expensive articles of clothing bearing names other than their own. Bridget said her glittery sliver sneakers cost $95. "Most people consider you cool if you wear the right clothes," said Safiya. Added Abdul, "I just buy what everybody else wears."

But it was encouraging to know that they didn't always feel obliged to go along with the crowd. "What you wear doesn't determine who you are," insisted Mia.

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So don't hesitate to sell your children on daring to be different. They'll be willing to listen (and buy less expensive clothes as a result). "I don't think you should spend $17 on a red T-shirt with someone's name on it when you can get a red shirt for $4 or $5," said Kendra.

A sure way to help kids kick the designer habit is to make them kick in for their own wardrobe. Would Bridget have paid $95 for shoes if she had to spend her own money? "No way."

On credit cards

None of the students had actually used a credit card, and they disagreed about whether they'd want to. Eric, for one, was reluctant. "I like to spend, so I'd probably max it out." Anna, on the other hand, was willing to take a chance because "I think I'm pretty good with money."

Although the kids had a general grasp of the perils of credit, they weren't quite clear on the fine points -- for example, what happens if you don't pay your bill in full each month. "You have to take stuff back," said Eric. "They take your limit down a little," said Chris. "The repo man comes," said Abdul.

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On jobs

Several of the students were already in the labor force, and a couple of them were entrepreneurs (a word that Eddie could even define). Stephen offered a pet-sitting service for his neighbors but was timid about setting a price for his services. His customers "just offer me money," he admitted.

Once they're old enough to have a "real" part-time job, they didn't know how taxes would fit into the picture. "I don't think children would have to pay taxes like adults, because adults have to take on more responsibilities," said Andrea. (Sorry, Andrea, but the IRS doesn't let kids off the hook just because they're kids.)

The children had some ideas about what they'd like to be when they grow up: lawyer, pediatrician, engineer. But they were a little shaky on how much they could earn: "$35,000 a case"; "I don't know"; "at least $1,000 a year."

They didn't think it was fair that some athletes are paid more than others -- "They play in the NBA, they play on the same team, they should all get the same amount of money," said Nick -- or that athletes in general should be paid more than people in other fields. But they had a glimmer of understanding about why that's the case: "Entertainment," said Andrea.

GET THE BOOK: Raising Money Smart Kids