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Raising Financially Smart Kids

We all want our kids to enjoy the best life has to offer, to do better than us financially and to learn from our mistakes and achievements. Passing on our knowledge is one step to helping our children succeed in life, especially when it comes to money. It’s never too early to start teaching your kids about the value of money. In fact, the sooner you start the more of a financial edge you will give them. Not only will it help them, but it may even force you to change some of your spending and saving habits. If you’re not sure when or how to begin the “money conversation” with your little ones, we’re here to help. We’ve highlighted important tips as well as popular money topics you should address with your child and ways to go about doing so!

This Little Piggy Went to the Credit Union
In educating children about money, it’s best to start with the most basic concept - saving. Teaching saving is as simple as buying your child a piggy bank. Encourage your child to put any money they find or receive into their piggy bank. Tell them the goal is to fill up the piggy bank. The next step is to head to your credit union and open a savings account in your child’s name (if you haven’t already done so). You can either contribute the first $5 required to open it, or have them use the money from their piggy bank. There are two ways to approach opening your child’s account:

  1. Open a second savings account under your primary account number and name it “Johnny’s Piggy Bank” or “Johnny’s Account”. By doing this, you can monitor your child’s deposits and withdrawals. This method makes it easier for you to transfer money into their account whenever necessary. Plus, it’s one less account number to memorize.

Shameless Plug: With our U Name It Savings Account Program, you can set up individual savings accounts and personalize them to your specific savings goals. Start off early with “Baby’s Nursery”, and rename it as your child grows to “Johnny’s Account”.

  1. Open a separate savings account with your child and put it in their name. Since it’s not part of your account, they will receive their own account number and statement. This method gives them more control and responsibility over their money and hopefully builds a strong financial relationship with their credit union to continue for years to come.

Shameless Plug: If you know of a child under the age of 12, sign them up for our Kids Savings School. If you know of a child between the ages of 13 and 19, sign them up for our Edge Teen Savings account. Both are fun programs that teach valuable information about money! Visit our Kids Savings School website or our Edge website for more details.

It’s best to open a savings account for your child as soon as possible. The earlier you start the better. Saving will become like second nature to them, like brushing their teeth. Every time your child gets money from allowance, birthdays or odd jobs, encourage your child to put some amount into the piggy bank or deposit it into their savings account. A savings account is the best tool you could give your child in developing good financial habits.

Cool Fieldtrip: If you’re ever in Seattle, Washington, stop by Pike Place Market and visit their official mascot, Rachel. Rachel is a bronze cast piggy bank that weighs nearly 600 pounds and is located at the corner of Pike Place under the “Public Market Center” Sign. Rachel receives roughly $9,000 USD annually in just about every type of world currency, which is collected by the Market Foundation to fund the Market's social services. Locals make a habit of emptying their pockets and rubbing Rachel's snout for good luck.

Fun Fact: Ever wonder why it’s called a “piggy bank” and not a “doggy bank”? Going way, way back, there was a word in English, "pygg," which referred to a type of clay. It was used for making all kinds of household objects, including things for storing money. Eventually “pygg” evolved to “pig” and to today’s “piggy” bank.

Valuable Lessons to Learn
Once a savings account is set up, the lesson of saving has already started, making it easy for you to initiate discussion on other important money matters, such as:

Living within your means - Resist the urge to contribute the extra few dollars it would take for your child to buy the toy that costs more money than they actually have. Instead, talk about saving for a few more weeks so they can get it or explain they need to pick out a less expensive toy.    

Understanding value - Kids, especially the young ones, have no concept of money. To them, $100 may mean you are rich. Teach them that some items may cost more and that it is up to them to decide if they think the item they want is worth spending their money.

Setting goals - Ask your child to make a list of goals they hope to achieve now and for the future. Then next to each goal, sit down with them and determine the realistic cost and how long it might take to achieve it. Don’t criticize their goals even if they seem impossible, like buying a pony. Keep those goals on the list. It’s a great way of showing them every thing has a price and that getting what you want requires patience, dedication and time. It also helps them re-evaluate what they really want and need in life.   

Developing a budget - As your child grows, they will inevitably develop a variety of interests and wants, all of which probably involve money. Help them develop and identify budget categories, such as going out with friends, shopping for clothes, buying birthday and Christmas gifts, splurging on the newest “it” toy or game, buying a car, etc. Review their earnings and savings, and suggest they put a percentage of their earnings into each category. This will get them started on managing their money. This also teaches discipline and delayed gratification, where they learn to wait for the things they want through short-term sacrifice rather than getting short-term gratification with long-term consequences (debt).

Teaching Tip: To introduce your child to the concept of a budget, follow financial expert Dave Ramsey’s envelope idea in his Financial Peace Junior Kit. Give your child three envelopes labeled: “Savings”, “Spending” and “Giving”. It’s a great way to introduce kids to the idea of a budget with three important categories for them to focus on first.

Cool Hookup: For a list of what your child should know financially by the age of 18, read the book, Raising Financially Fit Kids - a parent's guide to raising financially sophisticated children, from the founder and CEO of the leading provider of financial programs for kids and parents, Joline Godfrey.

The Art of Allowance
To give an allowance or to not give an allowance? That is the question! Remember it is always better to give, even if it is a small amount. A regular allowance prepares your child for what lies ahead in the workforce as well as helps in the lesson of budgeting. It gives your child the chance to practice what you are teaching.

When giving an allowance, pay your child in small bills or coins. By using smaller denominations, it will be easier for your child to split it up for spending, saving and giving. When determining how much of an allowance to give, consider these four important factors:

  1. Your child’s age. In most cases, the older the child, the bigger the allowance. This holds true especially if you give your child more responsibility as they grow older, i.e. buying clothes. Also, older children seem to be more involved in activities and school, which again may require more money.

  2. Your family income. No matter how much you would love to give your child, you must always figure it into your budget first.  If you can’t afford to pay an allowance you feel is appropriate, explain this to your child. This in and of itself is another smart lesson you are teaching them about money…living within your means.

  3. Where you live. Your town, school and neighborhood definitely impact how you spend your money and how much your child will spend as well. While you may not want to compare your situation with your child’s best friend down the street, it will still influence your decision on how much to give. It may not be the deciding factor, but it will probably be a factor nonetheless.

  4. What the allowance is supposed to cover. Consider all the things you expect your child to pay for on their own. Is it clothes, toys, birthday gifts, lunch, books, etc.? If your child is only 5, you will probably not expect them to buy their own clothes, but if they are a teenager, you might. Give your child an allowance that is sufficient enough to cover everything you feel should be their responsibility financially. Some parents supplement an allowance with spending money. Some parents even offer a “gift allowance” which is to be used only for gifts. If this is the case, a less generous weekly allowance may be in order.

Teaching Tip: Resist making loans. At some point, your child may ask you for an advance on their allowance. While it is tempting to front them the money, this could teach them that borrowing is an optional financial strategy for achieving short-term pleasures which in the “real world” could later turn into debt. Encourage them to continue to save first. If you do agree to give them the money, be sure to treat it as an official loan by charging interest with their repayment. This will at least teach them how loans work and hopefully discourage them from future shopping sprees until they have the money to pay for it themselves.

Cool Hookup: If your child wants more money than what is earned through their allowance, encourage them to look for outside ways of earning money. For a list of ways your child could earn extra pocket change while building self-confidence and instilling responsibility, check out a special feature on www.familyeducation.com. Click here to view article.

Fun Fact: Today, a key rule of thumb in setting allowances is paying a dollar a year: Pay $1 for each year of your child's age. Under this scenario, your 8-year-old would get $8, while your 12-year-old would receive $12. Adjust this general rule for other factors (your family finances or other issues).

Get Involved
Just as you help your child with their school studies, do the same with money matters. Get involved and be proactive. Take the opportunity to teach them about money any chance you get. For example, a simple trip to the store could turn into a life-altering financial lesson for them. Other ways you can get involved:

Let Your Child Help You Pay the Monthly Bills – When you sit down to pay the bills, include your child in the process so they can better understand spending and saving. If you pay your bills online, pass the computer mouse to them to help you click on the dates and dollar amounts for fun!

Play Money Games – If your child is old enough to play board games, opt for Monopoly or Life. They are fun, offer great family time and teach about money.

Fun Fact: There is more Monopoly money printed in a year, than real money printed throughout the world. The amount of money in a Monopoly game is $15,140.

Use Everyday Life for Teaching Opportunities – As we stated above, use your trips to the store to talk about money. When you pay the bill, let them watch you. If you use cash, let them help you count it out. If you use a check, credit card or debit card, explain how these payment methods work as well.

Shameless Plug: When the time comes for your child to open a checking account or credit card, consider Alabama Telco. Our Choice Checking account features special benefits that allow your child to customize the account to suit their growing needs. It comes with our debit card, which opens the door for them to apply for our Centsible Savings Program. It’s a savings program that automatically rounds up your debit card purchase to the nearest whole dollar amount. The extra change then goes to a special savings account that not only earns interest but also offers a match. And for their first credit card, the choice is easy. Our VISA® Platinum credit cards feature great low rates and depending on the one you choose offer a cashback rebate or rewards points. It’s the card designed to carry them throughout their life. Plus, ask us about our Student Visa program!

Let Your Child Figure Out the Tip – When you dine out, teach your child how to tip. An easy way to calculate a 15% tip is to start with 10% of the bill and then add half of that figure to determine the correct amount. Another trick is doubling the tax.

Offer a Match – Every time your child puts money into savings, either match all or part of it. This encourages saving and gives them a taste of how a company’s 401k plan works.

Give Non-monetary Savings Rewards – Young children may not understand that $10 tomorrow is better than $5 today. When your child saves money, consider rewarding them with things special to them like stickers, toys and special outings.

Display a Picture – Many of us work best when we can visualize our goals. Hang a picture of a wanted item off your child’s wish list on the refrigerator. This picture will help remind your child why they are saving their money.

Educate Your Kids about Misleading Offers, Marketing Tactics and Hidden Costs in Purchases – As they get older, talk to your kids about how companies use marketing tools to gain their business…some good and some bad. Television commercials provide many examples of misleading marketing tactics that our kids need to understand. Explain to them the many credit card offers you get in the mail and why one offer is better than another. Teach them what to look for in those offers, like hidden fees. Online purchases include shipping and handling costs that kids need to figure into the final price. So while it may appear cheaper to buy something online, the additional costs may make it more expensive in the long run.

Help Them Spend Money – Sometimes children will get so focused on saving their money, that they won’t spend any money along the way. Help them enjoy their money by spending some on small purchases or surprising them by buying something they’d like. While saving is good, you want to make sure they enjoy their savings.

Shameless Plug:The first step you can take to getting involved with your child’s financial education is signing them up for our Kids Savings School or our Edge Teen Savings account. It’s the fun way to learn about money and provides more tips and ways for you to teach your child about finances! Visit our Kids Savings School website or our Edge website for more details.

Walk the Talk
Leading by example is the best and most effective way to teach your child how to succeed financially in life. It all starts with you. Children are constant observers, absorbing every thing and every one they see around them. They mimic your actions and behavior the most. So be consistent. If you teach them it’s important to save a portion of their allowance, make sure you’re doing the same thing with your money. As a parent, you also know the mistakes you’ve made and want to be able to prevent your children from making the same ones. So, if you’re battling debt, teach ways to prevent them from ever entering into debt in the first place. Change your spending and saving habits if necessary to get your points across. The most important lesson children need to learn is money can manage us, or we can manage our money.

Shameless Plug: If you can’t manage your money or just need a little help to get you on track, our financial experts can help you. Visit your local branch for help or contact our Financial Planning Services.

Great Quote:  “We’re raising a whole generation with ‘sucker’ stamped on their foreheads because we’re not teaching them (about money).” - Financial expert Dave Ramsey’s response to those parents who think money is a concern for grown-ups and not kids. Start educating your kids today!

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