Money Smart Kids
Advice for Parents as Their Kids Head Back to School
Now is a great time to teach your children lessons about managing money. Here's how.
By Janet Bodnar, Editor, Kiplinger's Personal Finance
August 20, 2009
There’s nothing like a financial crisis to focus the mind on, well, finances. That applies to kids as well as adults. In a survey earlier this year, nearly 80% of teens polled by Junior Achievement said that their parents were talking about the economy more than they used to. And in a new survey by Capital One, half of the teens interviewed said they wanted to learn more about money from their parents.
Unfortunately, only 24% said that their parents talk to them regularly about financial topics. But as students head back to school, parents have a golden opportunity to take advantage of a prime teachable moment for kids of all ages:
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Elementary and middle-school students: Start an allowance. When children enter first grade, they learn that four quarters equal ten dimes equal one dollar, and they have a more sophisticated understanding of just how far money will go and how to parcel it out.
Start with a basic weekly allowance equal to half a child's age. You can adjust that up or down, depending on how much you expect your kids to pay for.
Unless you're well organized, I don't recommend that you tie the basic allowance to household chores. Instead, give the kids financial "chores," such as paying for their own collectibles or refreshments at the movies. To teach the value of working for pay-and to keep track of the work your youngsters are doing-pay for extra household tasks on a job-by-job basis.
As children enter middle school, you can expand their allowance -- and their responsibilities -- to include other expenses, such as mall excursions, after-school snacks with friends and movie tickets.
High school students: Set up a checking account. Especially if your children have earnings from a summer job, they should have more freedom (and responsibility) to manage their money on their own.
Community banks and credit unions are often more willing than big money-center banks to set up accounts for teens. If your bank balks, you can always co-sign for the account.
Or give your kids access to their savings account with an ATM card so that they can make deposits and withdrawals. They'll learn how to manage the account (and avoid overdrafts) before they head to college.
College students: Cover all the bases. It often comes as a surprise to parents and kids that they don't agree on who's going to pay for which expenses. And it's an even bigger shock a month or two into the semester when the bills start rolling in.
Let your student know, for example, that you'll cover books, but to lower the costs he should use campus book exchanges or discount Web sites, such as BigWords.com, CampusBookSwap.com, Half.com or Amazon.com. You'll pay for the school meal plan, but beer and pizza on Saturday nights are on his tab.
Overdraft penalties should come out of his pocket. To keep out-of-network fees to a minimum, choose a bank with ATMs that are convenient to his dorm. Tell him that he'll have to share discretionary expenses, such as fraternity fees, so he should think twice before pledging.
A new law that will make it tougher for young people under 21 to get credit cards takes effect next February, so there may be a flurry of activity as younger students try to get in under the wire this fall.
But they shouldn't be in any rush (see Co-Sign for a Credit Card?). If your student doesn't already have a checking account with a debit card, help her open one. There's plenty of time to move on to a credit card once she's mastered the art of managing cash.
