Never too young to manage money

Laguna Beach children are surrounded by affluence. Money plays a pervasive role in almost every aspect of daily life. Appreciating its benefits and understanding its challenges is a crucial life lesson.

This month’s Coffee Break program hosted two speakers, Joel and Karen Goldhirsh, known to schools and parents statewide for their expertise in financial literacy.

Both speakers offered practical advice in helping parents teach their kids to be more financially accountable instead of entitled or ignorant about money.

According to the speakers, we start with looking at our values about money rather than the value of what we own.

When we are clearer about what is important, we are in a better position to know where to budget -- what to save for and how to invest, as well as issues of philanthropy and asset transfer.

According to this month’s speakers, financial literacy begins at a young age, as soon as a child says “I want” or starts asking for things. For the preschool child, a parent teaches financial literacy by showing different coins to the child and distinguishing the value of each coin.

After such instruction, a child might be given several coins in the grocery store and allowed to buy something.

For the 5- to 8-year-old, a four-slot piggy bank is recommended, with one slot designated to save, which encourages goal-setting; another slot for spending, which highlights the child’s responsibilities; a slot for donations, which invites the child to make a choice; and a slot for investments, which the parent explains is for the child’s future.

Additionally, it is recommended to: open a savings account for the child; introduce the concept of interest (with use of a compound interest table); consider a small investment in a stock that the child recognizes; teach about economic diversity; and encourage money-making ventures like yard sales or lemonade stands.

When asked how big of an allowance to give a child, research was shown from a 2003 survey where the dollar amount matched the approximate age of the child. For example, a 6- to 8-year-old was given $6 a week; 9- to 11-year-old $8; 12- to 14-year-old $12; and 15 to 17-year-old $20 a week.

Again, the presenters emphasized that any allowance will be influenced both by the values of the family and the needs of the child. Ideally, an allowance will be an educational tool that teaches the difference between needs and wants.

Loans and/or advances are discouraged, as the child does not develop a tolerance for delayed gratification.

Parents were encouraged to consider matching the child’s savings, and most importantly, to be consistent in paying any allowance on time.

The presenters discouraged paying a child for good grades, and encouraged that any good grade is a reward, in and of itself.

During the teenage years, expenditures will increase dramatically. Teens spend, on the average, about $85 a week. Here, fitting in is generally the top priority. Good habits may be enhanced when teens are encouraged to make a list of what they spend money for and discriminate between what they pay for and where parents assume responsibility; consider use of savings for a major purchase; and learn about a debit card and/or open a credit card account.

Even though parents may feel reluctant about the use of a credit card during high school, the presenters emphasize that in college, their children will be bombarded with credit card applications.

It may be better to teach their teen in advance how to manage credit responsibly.

It is also recommended that teens take their first steps with making investments with stocks and mutual funds. The presenters also encourage outside employment for the teenager.

A job may reinforce the value of money in relation to effort, keeping track of spending, learning about taxes and developing a good work ethic.

For the college-bound child, it becomes important to discuss both the practical cost of an education, along with its value. Boundaries are vital, with a clear understanding as to what the child pays for (with an allowance and budget in place) and where the parent assumes responsibility.

Teenagers in this life phase will benefit from being educated on the best options available for saving (e.g. for college, a car and any extras).

Last, but certainly not least, children who connect with giving at an early age will carry this passion for life in ways that enhances self worth and a connection to the world at large.

In Laguna Beach, it is realistic to consider setting family goals for an amount of money to be donated on a weekly or yearly basis and getting kids involved in the choice of a charity.

Children are not born with an impulse to give; they must be taught.

Ultimately, parents make money talk and say the right things by considering their own relationship with and valuing of money; talking about the function of money and encouraging money management skills; seeing philanthropy as a positive family experience that extends beyond death; and setting a positive example.

* Karen K. Redding is a licensed clinical social worker and psychoanalyst in Laguna Beach and participates on the Coffee Break planning committee.