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Teaching Your Children And Grandchildren About Money

As a long term professional in the financial business, I take great pride in the fact that I mentored my daughter in the ways of responsibility and accountability with issues surrounding money. In her early days, we looked at the stock tables together, built hypothetical portfolios, did banking together, and watched the news which led to discussions about the economy and how money works. Now that I am a Grandpa (wouldja' believe it!) I once again look forward to teaching my grandson about one's relationship with money, its uses and misuses, and how to be a responsible human being relating to his finances. It's never too early to start teaching you kids about the proper use of money, how the economic system works, and how their relationship to money will help to mold them in many ways. In our practice, I am often asked about when is the proper time to start, and how. So, here is a short list of suggestions to get your little ones indoctrinated to this new side of life:

As soon as children can count, introduce them to money. Take an active role- repetition and observing others are the two methods they learn by. If you can, show them different currencies from other countries and identify these coins with those of the US Mint. Let them know that there are many types, shapes, colors and sizes of tender.
Communicate with your children as they grow, about your values concerning money and how to save it, make it grow, and most importantly how to spend it wisely.
Teach your children to learn the difference between needs, wants and wishes. Often misunderstood by adults, use examples to illustrate the differences- this will prepare them for making good spending decisions in the future.
Setting goals is a fundamental concept to help young people learn the value of money and also how to save. People, young or old, rarely hit targets they never set. Nearly every toy or other item children ask their parents to get for them can become the object of a goal setting session. Benefits of saving to achieve the goal are an important aspect and provide built-in motivation. Goal setting for good grades, toys or savings, helps children learn to become responsible for their own futures.
Indoctrinate your children to accumulation (or savings) instead of spending (or consumption). Explain and demonstrate the concept of earning interest income on savings. Consider paying interest on money saved at home. Have children help calculate the interest so they can learn and see how fast money accumulates through the magic power of compound interest. Later on, they will also realize that the quickest way to a good credit rating is a history of regular successful savings. Some parents offer to match what children save on their own. When giving children an allowance or income, give the money in denominations that encourages saving. For example if the amount is $5, give out five $1 bills and encourage at least one be set-aside in savings. (Just saving $5 a-week at six percent interest compounded quarterly will total about $266 in a-year, $1,503 in five years and $3,527 in ten years.)
Introduce investments to children. Show then how to look up stock in the Sunday paper. Let them pick a stock and follow it. Make it fun- If you've been to an public amusement park, find the stock of the company that owns it. It they like toys, pick a toy manufacturer, etc.
Take the youngsters with you to a credit union a bank when you open their savings accounts. Introduce them to the manager, or perhaps arrange a short tour of the vault so that they can see how the institution works by taking out the mystery of the cages and barriers. Beginning the regular savings habit early is one of the keys to savings success. Don't refuse them when they want to withdraw from savings for a purchase or you'll risk having them hesitate to put money away in the first place.

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