Published February 2005

It’s never too early
to get financial education

By David Pace
Guest Columnist

As any die-hard Harry Potter fan will tell you, there are 29 knuts to a sickle and 17 sickles to a galleon. In fact, it wouldn’t surprise many parents if their children knew more about knuts, sickles and galleons — “wizard” currency in the wildly popular literary series — than they do about cold hard cash.

And that’s a costly knowledge gap. It’s estimated that more than 90 percent of high school graduates receive no personal finance education. In fact, basic money management skills are not part of most schools’ standard curricula. Without financial education, young people will learn about money from the school of hard knocks. 

It’s never too early, or too late, to teach kids the skills they need to budget, save and manage money. What can parents do to prepare them for financial success in the post-graduate “real” world? Here are a few suggestions:

• Give children an allowance. How much should you give? How old should your child be? Should allowances be tied to chores? Should your child be allowed to spend it all? Experts don’t see eye-to-eye on all the particulars, yet most agree that an allowance is a good way for children to learn and practice the money skills they’ll need throughout their lives. Whatever you decide is right for you and your family, make sure everyone understands the rules up front and, most importantly, pay the allowance consistently and on time.
• Encourage your child to save. Give allowances in denominations that make it easy to save. If your child’s allowance is $5, give it in $1 bills so the child can save one. At about age 8, when children can understand interest, it’s time to take them to a financial services company to open a savings account. Help them calculate the interest on their account and see how compound interest makes their money grow faster. Teach them how to make deposits and withdrawals, write checks, keep an account register and balance their account; that ATMs don’t dispense “free” money; and — as your children mature — introduce them to other kinds of savings such as stocks.
• Include children in discussions about family finances. Let them know your money values and make sure they understand the relationship between earning and spending money. While they don’t need to know precisely how much money you earn, children do need a general understanding of family income and expenses. And allow them to express their opinions on family financial goals such as vacations and purchasing a home, car or other big-ticket items.
• Help your child set financial goals. Have your child list all the things he or she wants, then organize the list into immediate, short-term and long-term goals. This will help a child see saving is necessary in order to meet some goals. Together, develop a budget that includes spending, saving and sharing.
• Let your children spend some money. Sure, they will make mistakes. They also will learn about making choices; setting priorities; comparing price, quality and value; and distinguishing between needs and wants. They also may learn that money has a tendency to slip through your fingers unless you track your spending. Help them develop a simple cash-tracking system.
• Teach your child how credit and borrowing work. Help them calculate how much buying on credit adds to the total cost of an item so they can learn how to make wise choices about using credit. Make sure they understand that credit is a privilege — not a birthright — and it is earned through responsible money management.
• Help your child find ways to earn extra money. You may choose to pay your kids for doing extra chores around the house. As they get older, they can earn money by babysitting and yard work. By working for other people, children gain responsibility and self-discipline and learn about meeting an employer’s expectations.
• Encourage your child to share. Donating money to a nonprofit organization or buying gifts for loved ones can bring special pleasure to children. Make sure they include these gifts in their budget or spending plan.

Your child’s financial security is at stake. By starting early, you can help your child develop good financial habits that will last a lifetime. And if you want to convert that $5 allowance into knuts and sickles, use the Harry Potter Currency Converter at http://cgi.money.cnn.com/apps/hpcurrconv.

David Pace, a Wells Fargo manager in downtown Everett, can be reached at 425-258-3730.

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