Raising Financially Savvy Kids

By Barbara L. Steinmetz, CFP, EA

As parents, we have a unique opportunity as well as a tremendous responsibility. Many adults are not financially savvy and do not know how to handle their money, but we must teach our children the fundamentals. Even a young child can be taught the difference between "want" and "need" and the concept of delayed gratification. Obviously, the best teaching method is by example. How can a young child understand that the money supply is not unlimited if we constantly respond to her every demand? Television advertising -- especially during the holiday season -- makes it even tougher for parents.

Many of my suggestions are grounded in my background as a financial planner but also, more importantly, as the mother of two now grown sons. One of the toughest lessons a parent can share with children is the need to be responsible with money, whether earned or received as a gift as for a birthday. We always gave our children an allowance appropriate to their age and spending needs. Of course, they never felt it was enough. How many adults truly feel that they have enough? This is probably the first step toward learning to live within one's means and establishing a budget.

Children are smart. From a very young age, they can understand that by saving a little bit from each allowance, they will eventually have enough to buy a large item. I recommend that clients with young children establish a savings program with their children, similar to an employer matching contributions to a 401(k) plan. For every dollar the child saves, the parent can match it either dollar for dollar or 25 cents for each dollar or whatever provides the needed incentive to save.

It is possible for a young child to open a passbook savings account with the parent as co-owner. It is important that the child see the amount grow, either by presenting the money directly to the teller and watching the transaction or by seeing the statement of the value of the account. Handing the mo