Good News

Five Steps to Teach Your Children Money Management

How well do your children understand and manage money? Do they understand basic concepts such as saving, budgeting, borrowing and debt? Use these helpful tips to teach them!

by Becky Sweat

My son Danny is 16 now, but I still vividly remember a particular shopping trip with him when he was 7. We were in the electronics aisle at a discount department store. I had my back to him for a few moments while I tried to figure out which camera battery I needed. When I turned around, I saw Danny plopping a 12-inch television into our shopping cart.
"I'm going to buy this," he announced.
"We don't have the money for that," I quickly replied, and then picked up the TV to put it back on the shelf.
Immediately Danny hollered, "But Mommy, I have the money!" Then he opened his billfold to show me his wad of handmade $1, $5 and $10 bills.
Earlier that day, Danny, who has always been quite an artist, had used some of the currency in my wallet as models to meticulously draw copies of the bills on white construction paper. He then colored his bills with green and black pencils and cut them out. They looked surprisingly like the real thing.
I had assumed he was going to use his homemade currency to play "store" with his younger brother. But on this shopping trip, I realized that was not the case at all. Danny thought the way you "made" money was literally by drawing your own.

Time for a talk about money

The whole thing really took me by surprise. I would have never thought Danny had those kinds of misconceptions about money. It made me realize it was time to have some talks with him about money—how it's earned, how to use it wisely, and why it's important to be good stewards of what God has given us.
What about you? Do you talk to your kids—teens and younger children alike—about money matters?
We're told in Deuteronomy 6:6-7: "These words, which I am commanding you today, shall be on your heart. You shall teach them diligently to your sons and shall talk of them when you sit in your house and when you walk by the way and when you lie down and when you rise up" (New American Standard Bible).
The Bible has a lot to say regarding how we should be using our money. It follows, then, that we should be passing these financial principles on to our children and teaching them at least the basics of personal money management.  
The current worldwide economic downturn adds even more urgency to doing so. "Kids know we're facing tough times, but they don't always understand how we got there," states Karen Varcoe, Ph.D., consumer economics specialist with the University of California Cooperative Extension. She believes the vast majority of parents are not talking with their children about money management. Instead, kids are getting their "lesson" in personal finances by simply watching their parents.
Dr. Varcoe continues: "What they're seeing is most everything being purchased with a credit card or check. They don't see cash very often. This can give them the false impression that the family has an endless supply of money. And indeed, when we use credit cards instead of cash, we generally spend more than we should."
This kind of overspending not only sets the wrong example for kids, she says, but was certainly one of the root causes of the present global economic crisis. It's also the reason so many people found themselves in dire financial predicaments this past year when the U.S. economy nose-dived.
"You need to be telling your kids how to save money and spend it wisely, and why it's important to not misuse credit, so that their future financial stability isn't in serious risk, as is the case with so many people today," she urges.
This teaching can begin as early as age 3 or 4, or whenever your child begins asking about money. Your lessons will be very basic for preschoolers, perhaps just explaining that you have to work hard for your money and that it doesn't "grow on trees." As your children grow and mature, you can gradually get into more in-depth instruction.
What if your kids are teens and you've never talked with them about money management before? "It's never too late to have these kinds of conversations," Dr. Varcoe says, "but the sooner you do, the better."
Here are some suggestions to get you started:

1. Provide children an income to manage.

Children cannot learn money management unless they first have some money of their own to manage. You could provide that through some kind of allowance or through payment for certain tasks. "If your children are spending your money, they're not going to think twice about spending it. But if they're spending their own money, they're going to make much better purchasing decisions," says Erica Sandberg, a San Francisco-based family money management consultant.
She suggests you provide this income at fixed and regular intervals, such as on a weekly or biweekly basis. Make it a large enough amount that your children can afford a couple of inexpensive items at the dollar store, but not so much that they're able to buy a new video game without saving up for it.
How old should your child be for you to start providing such regular income? While preschoolers can start to be educated about what money is, children are not develop-mentally ready to learn how to manage it until they reach age 6 or 7, according to money coach Janet Bodnar, author ofRaising Money Smart Kids (2005).
She believes that is the best age to institute a small income. "Not only are children more mature, but they're also learning about money in school," she says. "So they'll know that a $1 bill equals four quarters, and that their $3 allowance will buy a small tub of popcorn, for example."
To prevent children from developing an "entitlement mentality," parents can make allowances conditional—meaning kids get their allowances only if they have made their beds daily, kept their room clean or done other routine chores. Many parents, however, take the approach that children should do routine chores without pay as part of their responsibilities as family members.
Either way, you may also want to give your children opportunities to earn an allowance or additional money by doing household tasks other than their regular chores—such as raking leaves, shoveling snow, washing the car, weeding the garden, cleaning out the basement, washing windows, etc.
This will teach your children to link having money with work. In addition to helping instill a valuable work ethic, chances are they're then going to be more careful about how they spend that money because they know how hard they worked to receive it.

2. Show them how to budget.

Once your children have a regular income, you can begin to teach them to live on a budget. Ideally, set aside some time when you can sit down with your kids and have a focused discussion about budgeting without any interruptions.
Start by explaining that a budget is a plan for how you are going to use your money. Help your kids understand that budgeting is not just sound advice from secular financial advisers, but that the Bible actually points to the necessity of budgeting. You could turn to Proverbs 16:9; 21:5; 24:3-4; 27:23-24 and Luke 14:28-30 for some good overview scriptures. 
Talk with your children about why it's important to live within your means, tithe and save a regular portion of your income. Discuss the downside of overspending, borrowing and getting into debt.
Read Leviticus 27:30 and Malachi 3:8-10 to your children to show them that God expects us to tithe (see the Q&A on page 29). Use Proverbs 21:20 and 30:24-25 as a starting point for talking about why we need to save some of our income. Read Proverbs 22:7, 26-27 when discussing the problems of getting into debt. When you go over these verses with your children, explain what they mean in everyday terms and how we can apply these principles in our lives today.
If you have a budget yourself (and hopefully you do!), show it to your kids, whether it's on your computer or in a ledger book. Help them see what you have in terms of monthly income, what bills need to be paid each month and what will be left over for discretionary spending. This will give your children a more concrete understanding of what it means to budget.
After you've explained some of the basics about budgeting, help them devise their own budgets. First, come up with a figure for how much income they normally have each month through allowances or earned money from household or part-time jobs. Then, help them figure out what percentages of their income should go to various categories—tithes, charitable donations and gifts, spending money, short-term savings, long-term or college savings, etc.
Other than tithes, the percentages for the other budgetary categories are variable. Savings should definitely be a high priority though. Shirley Anderson-Porisch, a financial adviser with the University of Minnesota Extension, encourages kids to save at least 50 percent of their money. That could be divided up between short and long-term savings.
"When children save their money, they learn the discipline of self-control and delayed gratification—vital lessons in today's economic climate," she says.
If you have young children, what works well is to give them a jar for each of their budgetary categories. That is a system that Eva Miller has adopted for her 8 and 10-year-old children. When they receive money, they distribute it into each of the jars, according to the designated percentages.
"Once they put money in their tithe or college savings jars, that's where the money stays—until it reaches $20 and then the tithes will go to our church, and the college money will be deposited into their savings accounts at the bank," she said. "They also have jars for short-term savings, and they'll use that to save up for things like a new game, and 'fun money,' which is what they use for everyday expenses like buying a candy bar at the grocery store."
If you have preteens or teens, you can set up their budgets on the computer or get them their own ledger book. Have them record their expenditures each month, and keep a running total of how much they've spent in each budgetary category. This will help them see on an ongoing basis if they are spending too much.

3. Use everyday opportunities to teach your kids about money.

Life brings countless opportunities to teach our children about money. Consider, for example, the story mentioned at the start of this article. That situation was the perfect way to begin a discussion with my son about money. While we were still at the store that day, I took Danny aside and spent a few minutes explaining to him how my husband and I obtained our money and that we didn't have an unlimited supply. (I also explained what it meant to counterfeit money!)
You will probably have your own "teachable moments" that you can turn into money-management lessons. If your child notices you paying your restaurant bill with a credit card, that is the ideal time to explain how credit cards work—that it's in effect a loan that must be paid back within a month to avoid interest charges. Preferably you already have the money to set aside as repayment so that it's just a matter of shifting funds and not borrowing what you don't have.
When your credit card statement arrives in the mail, show it to your kids. Let them see how interest is computed and compiled, and explain why it's important to not rack up credit card balances that can't be paid off immediately, so as not to waste money paying interest.
If your children are with you when you withdraw money from an ATM or write a check at a store, that's an opportunity to explain how checking accounts work. If your children are with you on trips to the supermarket, talk about your purchases as you shop and what makes something a "good buy."
If you're watching television with your kids and a commercial makes an outrageous claim, use this moment to talk about how to evaluate advertising. If you get "too-good-to-be-true" offers in the mail, that's the time to talk with your children about scams and that "you don't get something for nothing."
These kinds of teachable moments are effective, because they are real-life examples. Your children can see for themselves how a financial principle you are trying to teach them can be applied in everyday life. That makes your lesson seem much more pertinent.

4. Learn to say "No" to your child's "wants."

Children are usually quite adept at pleading with their parents for toys, electronic gadgets, designer clothes or other nonessential items. When they do, it's not always easy to tell them no. Most parents don't want to be the bad guy, nor do they want to deprive their kids of things others have. Still, Sandberg says, "You shouldn't cave into your kids' every whim—even if you can afford to buy them what they want, but especially if you can't."
Learning that you don't get to fulfill all your wants is an important life lesson. "Children need to experience some disappointments, because that's part of life," says Michael Gutter, Ph.D., family financial management specialist at the University of Florida. He suggests you explain to your child that there are things you would like to buy, too, but can't afford. "That way he knows he's not singled out; he's not the only one not getting what he wants."
Even if you can afford to buy these kinds of items for your children, you should still be very selective about how many of their requests you grant. "If you overindulge your children, they're not going to know what it's like to have to work hard and save up for things they want," Sandberg says.
One way to respond to pleas for nonessential purchases is to tell your child he or she cannot have the item now, but could request to have it as a gift for some special occasion. Or, if you have teens or preteens who are old enough to pay for a lot of their "wants" themselves, you can encourage them to either save money from their allowance or do extra household chores to earn the money.
If it's a matter of your teen wanting to spend more for a "need" than you think is reasonable—e.g., he wants the $100 skateboard shoes when you've only budgeted for a $50 pair of sneakers—you could tell him you're willing to pay the amount you had earmarked in your budget, but require him to come up with the difference. "This will help curb feelings of entitlement," Dr. Gutter says, "and make your teen personally responsible for achieving his desires."

5. Watch your own example.

It was mentioned at the outset, but it's worth repeating: Your children learn a lot about money just by observing you. They watch what you do at the supermarket, department store, bank, mall, etc., and tend to mimic your financial attitudes, values and behavior. Depending on what you're doing, they could be learning some very good lessons or some that are not so good.
Luke 6:40 declares, "Everyone, after he has been fully trained, will be like his teacher" (NASB). If you shop to entertain yourself or make a lot of impulse purchases, your children are probably going to see that as normal behavior and do the same.
On the other hand, if you always go to the grocery store with a shopping list or only make major purchases after you've saved up for them, your kids are likely to adopt those practices.
You need to model good monetary habits. "If you set the wrong example, any talks you've had with your children about money management will fall on deaf ears," says Anderson-Porisch. Your children aren't going to be careful with their money if you're careless with yours—even if you tell them to do otherwise.
That's not to say that talking with your children about personal finances isn't important. As has been stated throughout this article, it most certainly is. Your children need instruction and guidance from you about how to budget, save and shop wisely. But it's your example—your showing them that you're carefully managing your own money—that helps them see that these steps are more than just an academic exercise and that they really do matter.
Clearly, you may need to change some of your own spending habits so that you are modeling the right behavior. But with today's economy as uncertain as it is, that's something you should be doing anyway. Now is the time to cut out unnecessary purchases, pay off credit card debt and build up your savings—for the sake of your family's financial well-being.
The fact that your children are watching your example makes these steps even more vital. They are learning lifelong money habits from you—both in terms of what you say and do. They're looking to you to show them how they should manage their own household finances someday.
It's up to us, as parents, to make sure our children are developing good money habits. 

Surviving an Economic Crisis

How can you get control of your life, behavior and money? The answer comes from a surprising, yet very wise source.

 

Are You a Slave to Debt?

Millions have allowed themselves to become enslaved to a harsh taskmaster—debt. Are you one of those caught in this trap? What can you do to break free?

by Howard Davis

Joe is 32 years old, handsome and muscular, in his second marriage and burdened by an overly abundant stack of monthly payments. His wife is a stay-at-home mother of two who hopes to complete graduate school.
They live in what they consider an embarrassingly small, 700-square-foot, run-down house, but they both make up for the lower-class image away from home by driving two late-model cars with payments of $400 and $500 a month. Joe also pays $550 in monthly support for a child from his first marriage.
Sound familiar? Joe is a consumer debt addict, and his story is just one example of America's growing debt tragedy. It is repeated in different forms many millions of times in the world's wealthier economies. Many of these people don't see it now, but there is a way out.

Digging into the debt hole

Joe's story of debt started when he graduated at age 23 with a $40,000 college loan, which is still unpaid. He recently signed a loan for a newer Harley-Davidson motorcycle because his old bike was "too bumpy." And so he took on $3,700 more debt.
Joe says he needs a better bike so he can get away by himself for an eight-day trip (which he'll finance using his credit cards). He says he needs to clear his mind so that he can come back to tackle his burden of debt, his challenged marriage and his career, which seems like it's going nowhere even though he works 16 hours a day.
Joe senses a need for change. He wants to escape from his bondage of debt, and so he is taking on $6,000 more debt (including lost wages) for his trip. He thinks this next debt-financed experience will help him successfully deal with his already overwhelmed life.
You might think this decision is irrational. But Joe really believes he needs to get away. He thinks he won't enjoy his escape except on a new bike because his emotionally driven logic deceives him. Joe does not understand that his dubious "solution" to his debt problem is fueled by a terrible habit that has firmly entrenched itself in his character. Like all destructive habits, it has turned into his greatest enemy.
Like countless others, Joe looks impressive on the outside, but is desperate on the inside. He reasons and acts like an addict, and he is not alone in his debt lifestyle. It is an addiction that is destroying the happiness, freedom and even the future of millions of people.
Do we have tendencies that make us candidates for this addiction? Like all people, we can let a few bad choices launch us into a downward spiral.

Fantasy and the debt addiction cycle

To escape from debt addiction, Joe must start by facing the realities of his motivations. Debt addictions often have roots in emotional problems. Joe must realize how his fantasies have crippled his capacity to make sound financial decisions; only then can he make progress.
The next step is deciding to do whatever it takes to escape the addiction. Overcoming any addiction is not easy, but it can be done and the rewards are great. Financial stability does exist beyond debt, but the change requires a complete mental makeover, including a new set of personal values based on reality.
Addictions typically start with a fantasy. In drug addiction, the addict is looking for a "fix"—a dose that will deliver an experience people desire, covet, lust after and feel they need. The "fix" becomes so real, compelling and powerful that they indulge. As long as the addict is in his fantasy experience, it feels right. But the fix is only a temporary illusion of achievement, pleasure and success.
Behind debt addiction is an inevitable cycle. The euphoria of acquiring new things leads to a sense of edgy emptiness only relieved by another debt-financed fix. Enough is never enough. Wise King Solomon observed this phenomenon 3,000 years ago when he wrote these words now found in the Bible: "The eye is not satisfied with seeing, nor the ear filled with hearing" (Ecclesiastes 1:8).
Experiencing more and more pleasure will ultimately not give anybody the true success that brings happiness. As Jesus Christ said: "No one can serve two masters; for either he will hate the first and love the second, or he will be devoted to the first and despise the second. You cannot serve God and Money" (Matthew 6:24, Revised English Bible).
Materialism will not satisfy or bring inner peace because true happiness doesn't come from having more stuff. Christ warned, "Take heed and beware of covetousness, for one's life does not consist in the abundance of the things he possesses" (Luke 12:15).

Wrestling with debt addiction: Seven steps to escape

If you're overwhelmed by debt, in most cases you can't blame others for being the victim. You made choices. Regrettably, a debt-financed lifestyle was a bad choice. It's possible you never completely understood the internal processes at work that created the debt addiction and you were never taught how to avoid debt. If you are addicted and feeling the pain it causes, you can find a way out, but there is only one way that really works.
Freedom from debt addiction requires a complete change in motivation, from mental and physical pleasures of consumption to building character. Today's world is structured to seduce us into the fantasy of promised rewards through debt. The feelings of desire and bad ideas they arouse are the ultimate source of a debt addiction.
But the good news is that there is a way to escape the debt trap! Overcoming an addiction always begins by shattering denial patterns. It starts by admitting you have a problem. But this is just the first of seven steps necessary to lead a debt-free life.

Step One: Declare spiritual war on fantasy

Facing up to debt addiction as a form of slavery is the greatest requirement to motivate and sustain the process of gaining financial freedom. A person has to want to overcome his own deception and live in reality. He has to declare total war on the problem and its origin in his thinking and behavior. Here, the Bible works as the greatest tool for spiritual warfare—a mirror. It allows you to clearly see through your addiction.
The Bible reveals the inner motives that lead to true success. The values it contains are far superior to human values and, if followed, will lead to financial freedom and blessings. The Bible provides correction to put an addict's life back on track.
"The rich rules over the poor, and the borrower is servant to the lender," says Proverbs 22:7. The term for servant used here is actually slave—a person without freedom. Being a slave to the lender means you are not really free, and you are subject to someone else in a way God never intended.
In God's dealings with men and women throughout the Bible, He shows His will and authority to make us free in every way, and He encourages us to use our freedom to care for others and develop our character. God did not design human beings for the servitude of financial debt, nor is a man or woman really satisfied while in the slavery of debt. As long as a person is constantly worried about paying bills, he cannot be free.
Overcoming any addiction is a profoundly spiritual process, a form of spiritual wrestling to see reality and act on it. It takes muscle, speed, agility and experience to win a wrestling match. But if Joe is going to defeat his problem, he must wrestle with spiritual issues. Successful wrestling requires the strength of muscle applied against a demanding opponent.
Steps two through seven show how to develop the muscle and character to overcome the opponent, and the process starts by confessing distorted thinking.

Step Two: Educate yourself to develop your vision of victory

To paraphrase a biblical proverb, without vision people perish. It takes a vision of victory, as well as a game plan with techniques, strategies and knowledge, to win a battle and war.
If you have a debt habit, read books about overcoming debt and achieving financial success. Challenge your habits with knowledge. This develops a vision of success with insight into how it can be achieved.
Write out a plan of financial goals for your life, both for the short term (the next year) and long term (the next five years or more). Study, think about and be creative in finding ways to save, and place priorities on real needs, not fantasies or desires. Start saving now. The vision should have a victory goal to eliminate all debt. Have a firm timeline.

Step Three: Change to a new lifestyle today

Develop a mental hunger for financial success by making lifestyle changes today. Make coffee at home in your own coffee pot at 10 cents a cup instead of buying a $1 cup at the gas station or coffee shop.
A triple café mocha cappuccino once every three days can add up to $400 a year, and that amount triples if you buy one for a spouse and teen daughter. It all adds up to hundreds, and even thousands, of dollars each year.
Some people spend more eating only 25 percent of their meals out (at triple or more the cost of staying at home) than they spend on the rest of their food budget. Why buy a $20 meal on a credit card and take 18 months to pay it off at 18 percent interest when you can cook a $6 meal yourself at home? Cut all unnecessary costs from your spending. Instead learn to spend more time with family, do no-cost leisure activities and shop used stores rather than buying everything new.
In a very short while, buying new things on credit will seem like robbing from yourself, and you'll hate it—and rightfully so.

Step Four: Replace bad debt habits with good character-building habits

If you are a typical adult, chances are you might need to get more exercise, read more to develop your mind and learn to be a better husband, wife, parent, friend or neighbor. Nobody is perfect, so become a student of God and learn to be more like Him. As Jesus said, "Therefore you shall be perfect, just as your Father in heaven is perfect" (Matthew 5:48).
Make a list of 10 to 20 things you can do each month that don't cost anything—and then do them. This allows you time to get your exercise, help your family and volunteer. Replace getting and debt buying by giving your time and effort to others, and it will come back multiple times as blessings. All the while, you will be moving toward financial freedom.
As Christ said, "Give, and it will be given to you: good measure, pressed down, shaken together, and running over will be put into your bosom" (Luke 6:38).

Step Five: Have a slash-and-burn debt strategy with the No! habit

To get relief, take a look at all existing payments and consider selling anything associated with a big payment. In Joe's case, his two cars with $400 and $500 payments could be replaced with two cars with $100 payments.
This could save him more than $8,000 annually, money he could then use to pay off other debts. He could also save substantially on car insurance by having older cars. These savings alone would almost pay off all his debt in five or six years.
Look at all your outgoing expenses and be totally honest. If you are making payments on anything you could sell to get out of debt, sell it now. Learn to say No! to yourself with pleasure, and relish the financial freedom it will give you.

Step Six: Resist the debt culture

Materialism is the core of the debt culture, and it motivates many people's lifestyle choices. People are choking in debt and all the personal problems it causes because of inverted values that place fantasy and egotism above reality. Sadly, it is all caused by human nature, which is so susceptible to lust. Face and reject the culture, and turn from all its lies.
The Bible explains how to overcome our vulnerable nature and the self-absorbed materialism in the world: "Do not love the world or the things in the world. If anyone loves the world, the love of the Father is not in him. For all that is in the world—the lust of the flesh, the lust of the eyes, and the pride of life—is not of the Father but is of the world. And the world is passing away, and the lust of it" (1 John 2:15-17).
The love of physical things does not produce happiness, no matter what all the advertisements say.

Step Seven: Pursue true spiritual happiness

The book of Hebrews says, "Let your conduct be without covetousness, and be content with such things as you have" (Hebrews 13:5). Every one of us is created in the image of God with a virtually limitless potential for creativity, accomplishment, growth and happiness. The earth is a beautiful place if we have the right values and can learn to be content with our physical possessions.
Real contentment comes from building character, achieving worthy goals and having rich and rewarding relationships. It also comes from the freedom of owning what is yours and being content with that. Life is good when people love you because you have given to them, been a friend, helped, loved and shown by example that you care.
Ultimately, real joy and contentment come through knowing life's great purpose and fulfilling that purpose day by day through a personal relationship with our loving God. Again, the book of Hebrews says, "For He Himself has said, 'I will never leave you nor forsake you'" (Hebrews 13:5).
Make God your partner. As Jesus said, "Seek first the kingdom of God and His righteousness, and all these things shall be added to you" (Matthew 6:33). Use your relationship with God to get out of debt and ultimately to find an endless future of freedom in His Kingdom!