Brian Pampuro is a Work and Family Life consultant for the Fleet and Family Support Center at Naval Support Activity Bethesda. He is also a financial counselor and a retired Sailor.
As parents, we often agonize over what type of gift we want to get for our children during the holidays or when their birthday is fast approaching. One of the best gifts that a parent can give their child, is the ability to save and manage money smartly.
I bring this topic up often when I am speaking with groups of people or even counseling clients on a “one-on-one” basis because it’s a topic that generally sparks a lot of interest and generates good conversation. Since April is celebrated as “Month of the Military Child,” there is not a better time than now to share some of my thoughts on the topic. I appreciate my colleague, Lee Acker, sharing his blog space with me for the month of April.
So, okay, you and some of our other readers might disagree with my theory. You probably feel that the best gift you can give your child is a happy, healthy home, built on a foundation of unconditional love. I couldn’t agree with you more! If you raise your children in a happy, healthy home, stabilized by unconditional love, they will most likely succeed in dealing with almost any of the complexities life will throw at them. The truth is though, even some of the most grounded and stable people I know have not made the best financial decisions.
I want our readers to understand and realize that poor money management decisions are not the result of poor parenting, sub-level intelligence or lack of educational accomplishment. Based on my experience as a financial counselor, I’ve found that most poor money management decisions are made because people simply do not know how to manage money and never had the opportunity to learn. A lot of our own parents were never exposed to proper money management skills or techniques for saving and investing. Think back to the days when you were in junior high or high school. Were there courses offered on basic personal finance or money management? When I ask that question in group settings, it is a rare occasion that someone will raise their hand. Some school systems are now offering basic personal finance classes to your junior high and high school-aged children, but is that enough?
I have heard a variety of things that some parents do to teach their youngsters about earning and saving money. Most agree that the best tool that you can use to teach your kids money management is to give them a monthly allowance. In my opinion, allowances should be given as way for children to learn money management, not as a means to get your kids to perform household tasks. Learning to contribute to the household without expectation of a monetary reward is something kids should be taught at an early age. If you do that, then whatever you give your kids in terms of an allowance can be used to teach them how to manage money.
I would like to offer our readers these six suggestions to help encourage your children to save and manage money and to lead them down a path to financial freedom:
1) Match your children’s savings dollar for dollar, quarter for dollar or whatever comfortably fits your budget. Wouldn’t you like free money? It may be a small cost to you, but the saving habits you are instilling now will be a great return on your investment later on in life for you and your child.
2) Give your kids interest on their savings. You can customize the interest rate so that their account can grow at a faster rate. This is another example of free money and over time, will introduce your child to the power of compound interest.
3) A good way to help children understand compound interest is by allowing them to “see” their money grow visually. Over time, even small amounts of money can grow at a fast rate. Demonstrate compound interest using a chart or spread sheet. For something a little more “kid friendly,” you can use kids “on-line” savings program such as Smarty Pig or Feed The Pig. Your bank or credit union might offer financial literacy programs for children, too.
4) Put your child in charge of buying their own “stuff.” This can be done with allowance and is for things like candy, video games, trading cards, cell phone applications, etc. It might surprise you how frugal your child will become when it’s their money being spent and not yours. In addition to helping children learn how to determine “needs versus wants,” the added benefit is that it will save you money in the long run, too.
5) Give your kids a concrete reason to save by having them establish and record financial goals. Make sure the goals are easily attainable in a relatively short period of time. This will increase the chance that they will want to establish more goals in the future and you can then increase the time and the amount they need to save for those goals, “a bite at a time” I say. These goal-setting skills will help them later on when they are ready to start saving for a car or home.
6) Help your kids open a savings account at your bank or credit union. Kids love to act “grown-up” and tapping into this opportunity may be the spark that ignites their life-long savings habit. Additionally, when their money is in a savings account, it is not as easily accessible. Encourage your child to categorize their savings into three groups: saving and investing; charity/church/community; and, spending. Recommend that your child deposit at least 10% of any money they receive for allowance, gifts, earning, etc. into their savings. Another 10% can go to the charity/church/community category. The remainder can be set aside for future spending based on your child’s financial goals.
Remember, your children are always looking up to you for guidance and direction. If you model good saving behaviors, money management skills and savvy consumer habits, chances are your kids will most likely do the same. Best of luck to all of you parents that are raising our next generation of millionaires!