This weekend we celebrate Mother’s Day.

Until they start earning a living, and sometimes well beyond that, our kids are apt to spend money like it grows on trees. According to a recent survey, 94% of children say that their parents are their primary financial educator. Our job as parents is to teach kids good money management skills and to model good financial behavior for them to follow. Here are some basic lessons to help raise money-smart kids.

1. There’s a difference between Needs and Wants

Only 43% of parents discuss the difference between a need (like the electric bill) and a want (like a new video game)—this is 20 percentage points lower than last year.

  • a. Show Them the Bills—From a very early age, kids can be taught about how much money it costs to run a household
  • b. Play a Game—Look at billboards, commercials and have them tell you if they’re a need or want
  • c. Reward Them for Saving Money—if they brainstorm ways to save on needs, split the difference with them.

2. Share Secret of Saving

  • a. Show benefit of savings through statements, etc—most kids only see spending, not saving. Fewer than ½ have regular savings plans.
  • b. Use calculators or examples—for example, if a 15 year old invests $1/day until age 65—will have $500,000 (at 10% interest)
  • c. Be honest about Poor Choices—More than ½ parents spend more on dining than college savings—about ½ spend more on vacation. Tell them how it has affected you.

3. Instill Smart Spending Habits

  • a. Start an Allowance Early and Help Kids save for bigger purchases
  • b. Consider prepaid cards to help instill good spending habits.
  • c. Encourage Goal setting—Help them by rewarding their efforts

4. Keep Out of Credit Quicksand

  • a. Be honest about How the recession has affected you.
  • b. Difference between “good” debt –Mortgage, or tax deductible vs “bad” debt—credit card debt.

--Cathy Brown, CB Wealth Management