The following staff post is by Jessica Streit.
Ask my 9 year old son what he needs more of and he’ll tell you three things: video games, money to buy video games and time to play video games. His currency, that which encourages him to do anything around the house is time on the computer. He’s a gamer already and has big plans for what his future of gaming is going to look like.
He realizes though that his future isn’t going to be so great if he can’t fund it. So it was with great reluctance, a few months ago that he approached me about earning more money. He already earns a base “salary” each week that he is with me (I share custody with my ex-husband so my children are here every other week) but he has rules for that money. He’s interested in increasing his free, fun money and wants to know how he can do it quicker.I’m lucky, I have a child who is interested in money already. He’s prime for all the education that I can give him about personal finance, investing and saving, and I plan to fill his little head with all the information that I can because I grew up without that financial education and have made poor financial decisions my entire adult life. I have only, in my late 30s, begun to learn the correct ways of handling money and while I still make mistakes, I’m bound and determined to show my boys the correct path.
One of the best ways to get kids interested in money is to start when they are young. One thing you have going for you when a child is young is that they still want to hear everything you have to say. If you wait until a child enters their teens, they may be more reluctant to listen. Something happens on their thirteenth birthday and they just automatically know “everything.”
Getting started with young children is easy. Start with an allowance around the time they enter school. At this age children have heard “No, that costs too much money” or “No, we can’t afford that” once or twice. This is a great time to show them that they can save some money for those items that were formerly out of reach.
A good rule of thumb is to give a child $1 for each year of his age (a 5 year old would receive $5 each week, a 10 year old would receive $10). Divide the money up into two or three banks. Typically, a long-term savings, a spend and a give bank but some families may choose to make it college savings, fun money and tithing. Make the choices based on what is right for your family. In my home it is Spend, Save and Give. My children give a portion of their income to a charity that our family supports, (currently it is the Ronald McDonald House) but it could also be your church or an organization that you volunteer for.
The allowance should be divided up in a manner that you find appropriate. In my home, 50% of their income goes into their “save” bank, 40% into “spend” and 10% goes in to their “give” bank. The money in the savings bank goes into a bank account after it reaches $50. We do not have any goals with the savings account, just that we will use it in the future.
Keep them motivated
As your child ages, you may find that their interest in earning money decreases. This is especially true if they are saving for something with a large price tag. At times like this it is a good idea to consider a match program or offering extra jobs for them to earn more money. A match program is simply matching what your child saves yourself. If your child is saving for something like a laptop and you know it will take them a very long time to purchase it, consider offering to match their money dollar-for-dollar.
This can keep the child motivated to keep working towards his goal. Do not do this every time he or she is saving but on occasion when the item they are saving for is something you would buy them at birthdays or holidays, it may be a good way to keep them motivated to save.
Many families match the savings account in this manner. The money goes directly into a savings account every time the child makes a deposit. As the child gets older and they begin to save for a car or college, this is a great way to keep them motivated and show them your support.
Teaching About Investing
A great lesson for tweens and teens beyond saving is investing. Personal investing is not often taught in the school system. If you want your child to learn this valuable lesson, then the best way to do so is to get them involved.
Purchase their first share of stock for a company they can relate to. Disney is great for the child who loves Disney/Pixar movies, Nike may be great for the athlete, if your child is a gamer or lover of all things computerized, consider buying him or her a share of Apple. The key is to buy something that will keep his or her interest. (Be sure to request the stock certificate so they can have something tangible. Disney makes very colorful certificates and it’s a great place to start.)
Together watch how the stock increases and, hopefully not often, decreases over time in price. Discuss how their investment has grown. Discuss how other similar stocks are doing and if they should purchase more or sell what they own. Start small but develop a portfolio that your child can take with him or her when they graduate school.
As for my oldest son, he’s opening his first savings account in the coming weeks and making plans for that spend bank. After he pays off a lost library book, he has plans to save for a used Wii. I plan to match his savings as part of his birthday present (which is in January). We’ll also be looking at purchasing his first share of stock for that birthday. We are going to learn to invest together.