Teaching Kids the Financial Facts of Life (continued)

This kind of arrangement encourages children to become educated savers and consumers and to learn from their mistakes. “If kids have to come up with $50 or more for a pair of shoes that will be out-grown or out of style in six months, they’ll think twice about buying the next pair,” says author and Kiplinger’s Personal Finance Magazine senior editor Janet Bodnar, who advises parents about kids and money.

2. Help your child start a savings or investment account. The old piggy bank still can be a fun way to introduce little ones to the concepts of saving and managing money. But at around age eight, your child may want to open a small savings account and begin learning what banking’s all about, from filling out deposit slips to reviewing statements. At this age or a little older, a kid may even be ready to buy a few shares in a mutual fund or individual stock (although remember that these are investments that carry risks, including the possible loss of principal). You may also want to consider rewarding your child for sticking to a savings plan by matching or adding to the child’s contributions. The idea here isn’t for your child to make an immediate fortune (although that’d be nice). Instead, you’re trying to provide a hands-on education in making financial decisions and monitoring the results (especially the mailings that bring news of interest payments and dividends). If this works, pretty soon your child may be reading the business section of the paper and not just the comics and sports.

How to get started? Consider one of the many savings programs for kids offered by banks and other financial institutions, although almost any no-frills, low-dollar deposit account will do. Think about helping your child invest a small amount in the stockof a company he or she knows and likes — perhaps a fast-food chain, a clothing manufacturer or an entertainment firm. Also check out mutual funds that cater to young investors by permitting small investments and focusing on kid-friendly companies. And if you’re uncomfortable having your child make investment decisions with real money, consider picking stocks you can track using play-money and then working up to the real thing.

3. Encourage the right kinds of “child labor.” Jobs can teach kids to be responsible and to enjoy earning and saving money. One way is to pay a child for extra work around the house — the kind you might hire someone else to do. This could mean cleaning the garage or babysitting a sibling on a Saturday night. Author and family finance expert Neale S. Godfrey encourages parents to maintain a list of non-urgent jobs a child can do. “Then when your offspring asks you for a second pair of designer sneakers or money to go ice skating with friends,” she says, “refer to the list.” Godfrey says this “overtime pay” helps everyone — it’s extra income for the child and a time-saver for busy moms and dads.