Teaching kids about money

I only have a couple of soap boxes that I regularly climb up on, and even so, I’m definitely not boisterous enough about them. My biggest craw is that I think money management should be taught to kids beginning in the elementary school years. And I’m not talking about giving children an allowance or what parents bribe their kids to do for a quarter dollar (guilty), I’m talking about in the classroom, as part of the curriculum.

Our nation is straddled in debt, and the spending philosophy runs rampant throughout society. I’m not saying I’m perfect, and I sure do wish that I had gotten a better foundation growing up.

So now that I’m a mom, I think about this with the Cupcake and how can I do better with her. How can I teach her about finances so that she makes smart decisions when she grows up?

I had the opportunity to talk with a Dad who has two twin daughters the same age as the Princess Cupcake (age 4). But he’s not any old Dad, he’s Michael Garcia, a financial advisor with Merrill Lynch – and I was intrigued. A dad and a financial advisor – he’s the expert I needed. I wanted the straight skinny: Am I giving her the right messages? What’s appropriate to teach her and when? How do I make her smart and “rich?”

Michael had some sage advice and because this is my soapbox, I feel compelled to share it with you:

1)   Help kids understand the concept of money first, then the financial aspect later.

Start simple with: dollars are paper, quarter are shiny, pennies are orange… He gives each of his twins a dollar and let’s them pay for their own lollipops. Now they understand that money pays for things. And that more money pays for different things.

2)   Develop the process when they’re young.

Since his girls were two years old, Dad and Mom would have the twins put some of whatever money they received into their piggy banks and explained that was “saving.” When the piggy banks get full, they take the money to the bank to open an account. Michael says that if you do it enough times then they’ll appreciate the process. It sounds so simple, but you have to make the effort. Habits don’t begin overnight, they develop over time. In our house, we have the putting it into the piggy bank down pat (she raids Daddy’s change on a daily basis), but she does NOT want it to go to the bank. Apparently she’s an “under-the-mattress” type of saver.

3)   And naturally any financial conversation about kids and money turns to college education. Michael says, Don’t plan more for your summer vacation than for your kids college education. True, that week in Gulf Shores is way more fun and you have this immediate payoff from all your planning efforts… but college planning doesn’t have to be a looming financial crush if you start early. Michael’s  three rules for saving money for college:

1. First, start early. For example, if you put aside $250 a month for your child starting with the month they were born and made a 5% return over an 18 year period, you’d have more than $87,000 saved for their college career. But if you wait until your child is 8 years old, but say you invested twice that amount to make up for the late start — $500 a month at 5% for 10 years, you’d have just over $77,000 saved.
2. The second rule for college savings? Start early. Remember, down markets are actually great for your college fund because you’ll be buying more shares for less dollars on your automatic savings program!
3. The last rule of college savings? Don’t forget steps one and two. 🙂

Before taking the college savings plunge, meet with your tax planner and financial advisor and determine your net worth. Don’t be ashamed if you have debt, they’re there to help you manage it all. Create a plan and don’t do it alone. Your professional team will set up a timeline and a savings plan for you, taking into account your sensitivity to risk.

Since I had still monopolized Micheal’s undivided attention, I took the opportunity to validate if we were on the right track with the Cupcake. We had recently instituted a chore chart and explained that she would get an allowance each week. (We’re terrible at consistency – note to self, must set reminder on iPhone for allowance day, thank goodness she hasn’t totally grasped the concept of a “week” yet!) When she gets her allowance, she can put it in three places and we’ll help her divide it up:

1)   Piggy bank

2)   Give

3)   Spend

In that order of priority. This has opened up many conversations about how it’s important to save money, and it’s important to help others in need. We haven’t built up enough in her “give” jar to find a place for her to donate it yet, but that’s an activity we’ll do together. I have comfort in knowing that the tithing message is reinforced at school because she takes in a chapel offering each week and the school explains that they’re buying a cow for a village or something like that. (2^nd Note to self: find out what chapel donations are buying this year.)

In case you’re curious, yes, we do have a college Cupcake fund set up and Michael says our conversations with her are on the right track. At this very moment in time, I feel validated. But – ugh – what about as she gets older? How can I keep the conversations maturing and help her to learn?

Come back tomorrow for part two of our money series where we continue the conversation about kids and money with Mark McCleland of Merrill Lynch.

Do you have questions for Michael Garcia? Contact him at (214) 750-2075 or michael (underscore) garcia (at) ml (dot) com.