Teaching Children Money Smarts

Do your children understand the value of a dollar? For today's children, learning how to manage money early is a lesson that will be important to them throughout their lives.

"It's indispensable," says Ed Mendlowitz, CPA, of WithumSmith+Brown in New Brunswick. "It's essential to a child's future. And the way schools teach about money, in my opinion, is inadequate."

Most children begin to learn about money through their allowances. Before he started giving his children an allowance, however, Mendlowitz insisted that they pass a test.

"It was the sort of thing you'd encounter when you go shopping – understanding prices and making change," he says. "But I didn't make it too easy. They didn't pass it the first time."

Mendlowitz recommends that parents talk about money and business with their children, even when the children are very young. As part of his savings plan for his children, he purchased single shares of stock in companies like Caterpillar, John Deere and Disney.

"We'd get the annual reports and look at the pictures," Mendlowitz says. "I didn't talk about the balance sheets, but what three- or four-year-old boy isn't interested in big machines and trucks and Mickey Mouse?"

In today's world, where lifetime employment is a rarity and company provided pension plans are getting scarcer, he believes that children need to learn about money and entrepreneurship from a very early age.

An allowance is a great introduction to how money works in the real world. Your children may not always make the right decisions, but they will learn from their mistakes now rather than when they are adults. Talking about money with your children – that's how the lessons will be learned.

Here are some additional thoughts from the New Jersey Society of Certified Public Accountants (NJSCPA) that you can use to ensure that even the youngest children learn how to save and spend wisely.

Explore Your Allowance Options
There are many ways an allowance can work. Some parents pay one amount every week, while other children receive money in exchange for certain chores or accomplishments. Some families require children to save some part of their allowance or give something to charity, while others leave this decision up to the child.

You should explain to your children what they are expected to pay for with the allowance. It may be meant to cover splurge items, such as new toys or pizza after school with friends, or you might ask them to chip in on other expenditures, such as equipment they will need for a sports team. On all of these questions, there is no one correct answer, so you can pick the approach that’s right for your family.

Encourage Savings
Whether you require your children to save some part of their allowance or not, it’s a good idea to open savings accounts for them and suggest that they set a small amount aside whenever they receive it, including birthday gifts or money they earn from summer jobs. Of course, savings aren’t meaningful unless they have something to save for. When your child is dreaming of an expensive electronic gadget or some other pricey item, explain that he or she can have it – when there’s enough cash in the savings account to buy it. This will teach your children the value of saving and teach them an appreciation of money and the things it can buy.

Get Information
The CPA profession has created several tools that you can use to teach your children about money. Visit MoneyMattersNJ.com, the NJSCPA's public service website, and click on the Life Stages menu item. You'll find selections for with articles for different age groups containing sound advice about how to teach children to be fiscally responsible.

While you are teaching your children, you'll also be educating yourself. And if you have your own, grown up money management questions or concerns, you can discuss them with a CPA with expertise in personal financial planning. If you don’t have a CPA, you can easily locate one online using the NJSCPA’s free, online Find-A-CPA service. Just go to FindaCPA.org, and in a few clicks you can locate a highly qualified professional who can assist you.

For additional information about helping your children learn about managing money, visit MoneyMattersNJ.com. You can also subscribe to Your Money Matters, the NJSCPA’s award-winning free, monthly email newsletter.

May 18, 2009