So you’re shopping with your niece, when all of a sudden she makes a beeline for the Silly Bandz—again. That girl can’t save her allowance to save her life, you think. And you wonder if it’s your place to step in and say something. The earlier kids are schooled in responsible money management, the better. Then again, there is something to be said about learning from your mistakes, right?
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Financial Health Is Health, Too
Manisha Thakor, LearnVest’s investment expert, thinks it’s absolutely appropriate to call attention to a child’s careless spending, just as you would any other subject. “If you saw your daughter or niece eating 10 cupcakes in one sitting, or sitting on the sofa all day and getting absolutely no exercise—you wouldn’t think twice about saying something. It should be the same with personal finance. We can’t expect to have financially fit children if we don’t actively teach them what good financial behavior is.” She recommends that adults lay out guidelines for spending, saving and donating to charity.
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Consider Charitable Donations
Parents, with help from their kids, can set the dollars amount or percentage towards each goal. For example, a rule could be to donate 10%, save 20% and have the remaining 70% to spend. The important thing is that kids get acquainted with the notion that every penny earned can’t be spent (think: taxes). And getting used to paying themselves first is a habit that will serve them well throughout life. There are even multi-chambered piggy banks designed for this purpose. Or, for $30 per year, you can allocate allowance dollars for different purposes and keep tabs on your kids’ I.O.U.s with threejars.com.
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Mistakes Are to Be Expected
Most experts say it’s normal—and healthy—for kids to make money mistakes. “They should be allowed to make their spending errors,” said Dr. Mary Gresham, LearnVest’s psychology of money expert. After a couple of weeks, ask your niece if she is pleased with the Silly Bandz purchase, or if most of them are misplaced, torn or stretched out of shape. If she clearly wishes that money was still burning a hole in her pocket, then ask “How will she change it next time?” Gresham suggests. Nathan Dungan, who works with kids and parents on this very issue as founder of Sharesavespend.com, would step in if the child routinely makes the same mistake. “But rather than shift into lecture mode, engage your child or niece in a conversation about the choices they made and more importantly, why they made those choices and what impact they have on their ability to save.”
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The Parent Is in Charge
It can be tough to convince a kid, especially one with few wants, that it pays to save. What’s the incentive if she wants an American Girl doll and Grandma is asking for her holiday wish list? Some experts suggest parents pay an above market interest rate on the dollars saved. That way kids can see a sizable change in short order, driving home the point that saving is worthwhile. If all else fails, you can always pull out the “Because I said so” card. According to Dungan, parents “have veto power over any spending choice their child makes—especially if a pattern of spending is emerging that’s only about ‘scratching the itch’ of immediate gratification.”