Teaching Your Child about Money

Ask your five-year old where money comes from, and the answer you'll probably get is "From a
machine!" Even though children don't always understand where money really comes from, they
realize at a young age that they can use it to buy the things they want. So as soon as your child
becomes interested in money, start teaching him or her how to handle it wisely. The simple
lessons you teach today will give your child a solid foundation for making a lifetime of financial
decisions.
Lesson 1: Learning to handle an allowance
An allowance is often a child's first brush with financial independence. With allowance money in
hand, your child can begin saving and budgeting for the things he or she wants.
It's up to you to decide how much to give your child based on your values and family budget, but
a rule of thumb used by many parents is to give a child 50 cents or 1 dollar for every year of
age. To come up with the right amount, you might also want to consider what your child will
need to pay for out of his or her allowance, and how much of it will go into savings.
Some parents ask their child to earn an allowance by doing chores around the house, while
others give their child an allowance with no strings attached. If you're not sure which approach
is better, you might want to compromise. Pay your child a small allowance, and then give him or
her the chance to earn extra money by doing chores that fall outside of his or her normal
household responsibilities.
If you decide to give your child an allowance, here are some things to keep in mind:
• Set some parameters. Sit down and talk to your child about the types of purchases you
expect him or her to make, and how much of the allowance should go towards savings.
• Stick to a regular schedule. Give your child the same amount of money on the same
day each week.
• Consider giving an allowance "raise" to reward your child for handling his or her
allowance well.
Lesson 2: Opening a bank account
Taking your child to the bank to open an account is a simple way to introduce the concept of
saving money. Your child will learn how savings accounts work, and will enjoy trips to the bank
to make deposits.
Many banks have programs that provide activities and incentives designed to help children learn
financial basics. Here are some other ways you can help your child develop good savings
habits:
• Help your child understand how interest compounds by showing him or her how much
"free money" has been earned on deposits.
• Offer to match whatever your child saves towards a long-term goal.
• Let your child take a few dollars out of the account occasionally. Young children who see
money going into the account but never coming out may quickly lose interest in saving.
Lesson 3: Setting and saving for financial goals
When your children get money from relatives, you want them to save it for college, but they'd
rather spend it now. Let's face it: children don't always see the value of putting money away for
the future. So how can you get your child excited about setting and saving for financial goals?
Here are a few ideas:
• Let your child set his or her own goals (within reason). This will give your child some
incentive to save.
• Encourage your child to divide his or her money up. For instance, your child might want
to save some of it towards a long-term goal, share some of it with a charity, and spend
some of it right away.
• Write down each goal, and the amount that must be saved each day, week, or month to
reach it. This will help your child learn the difference between short-term and long-term
goals.
• Tape a picture of an item your child wants to a goal chart, bank, or jar. This helps a
young child make the connection between setting a goal and saving for it.
Finally, don't expect a young child to set long-term goals. Young children may lose interest in
goals that take longer than a week or two to reach. And if your child fails to reach a goal, chalk it
up to experience. Over time, your child will learn to become a more disciplined saver.
Lesson 4: Becoming a smart consumer
Commercials. Peer pressure. The mall. Children are constantly tempted to spend money but
aren't born with the ability to spend it wisely. Your child needs guidance from you to make good
buying decisions. Here are a few things you can do to help your child become a smart
consumer:
• Set aside one day a month to take your child shopping. This will encourage your child to
save up for something he or she really wants rather than buying something on impulse.
• Just say no. You can teach your child to think carefully about purchases by explaining
that you will not buy him or her something every time you go shopping. Instead, suggest
that your child try items out in the store, then put them on a birthday or holiday wish list.
• Show your child how to compare items based on price and quality. For instance, when
you go grocery shopping, teach him or her to find the prices on the items or on the
shelves, and explain why you're choosing to buy one brand rather than another.
• Let your child make mistakes. If the toy your child insists on buying breaks, or turns out
to be less fun than it looked on the commercials, eventually your child will learn to make
good choices even when you're not there to give advice.
Registered Representative of and securities offered through OneAmerica Secrurities, Inc.,
Member FINRA, SIPC, 150 West Lake St., #106, Wayzata, MN 55391. Insurance
Representative of American United Life Insurance Company (AUL) and other insurance
companies. Anchor Advisory Group is not an affiliate of OneAmerica Securities or AUL and is
not a broker dealer.