Parents' money lessons short on good examples

PERSONAL FINANCE

April 22, 2001|By EILEEN AMBROSE

MOST parents say they understand money matters and think they do a good job of handling their finances, according to a recent survey.

But when it comes to teaching children these money lessons, some parents may be better off telling kids to, "Do what I say, not what I do."

The survey by the nonprofit American Savings Education Council found that parents often overestimate their financial know-how.

Less than half of the 1,000 parents polled usually stick to a budget, according to the survey. More than half rack up interest charges by carrying over credit card debt from month to month.

About 12 percent do not have savings in an Individual Retirement Account; neither do they participate when eligible in a workplace retirement plan that often offers free money through an employer match.

And excluding retirement accounts, 25 percent have less than $10,000 saved, and 11 percent have nothing salted away.

Parents also underestimate their influence as a role model for good or bad habits. "They don't take into account that kids listen and observe more things than we could ever imagine," says Don M. Blandin, president of the American Savings Education Council in Washington.

Children, taking a cue from parents, often say the only reason to use a credit card is to buy something you can't afford but want now, Blandin says. "That's kind of scary," he says.

Until personal finance is taught in schools, children will largely learn money management from parents. The problem, experts say, is that many parents were never taught this lesson as youngsters.

There are plenty of educational tools to help parents. Blandin's group, along with the TIAA-CREF Institute, created teaching tools available at www.asec.org. Jump$tart Coalition for Personal Finance Literacy offers instructional materials designed for different age groups at www.jumpstartcoalition.org.

But often parents can use everyday situations or their own experiences to teach the important basics.

That's what Joseph and Angela Maith of Fort Washington have done.

Angela Maith recalls using prices on grocery store items to teach her youngest son, Addison, his numbers when he was a few years old.

When Addison got a bit older and his taste in toys grew more expensive, the family discussions turned to saving. Addison bought the toys he wanted by saving what he earned doing household chores. His parents encouraged him by matching his savings.

Addison and his parents continue such savings agreements, drawing them up as contracts so both sides know what's expected of them. "It teaches him responsibility and accountability," his mother says

The Maiths, who share information about their income and expenses with their three sons, hope their offspring pick up financial habits they've seen at home.

The couple live within their budget. They don't have a credit card, giving up the convenience of plastic in exchange for not having to worry about annual fees, interest rates or runaway debt, Angela Maith says.

And they have a rainy day fund, something that comes in handy now that Angela Maith is between jobs as a career adviser. "I can enjoy the job search because I don't have that financial strain," she says.

The lessons aren't lost on 16-year-old Addison, who plans to launch a business selling cookies this summer. "They are teaching me the value of a dollar," he says.

Of course, how parents teach children will vary. But it's important, experts say, to start the lessons early. How early?

"How old were they when they started asking you for money? Really young," said Dara Duguay, executive director of Jump$tart.

A good place to start is to openly discuss family finances with children, experts say.

Parents "are scared this information will be shared on the playground," Duguay says. "When you keep them sheltered from that, they have no concept of reality."

Explain where money comes from. Many children think money magically appears from ATM machines, experts say.

A key lesson is teaching a child to develop a spending plan, says Peggy Houser, a Denver financial planner and co-author of "How to Teach Children About Money." "The problem I see as a financial planner is that people don't live within their income."

She recommends giving children an allowance and helping them budget their money by dividing it into three categories: spend, share and save.

Teach children to be better consumers by talking aloud while you shop about why you are choosing one brand over another, Duguay says.

Explain the ramifications of not paying off credit card balances on time, Houser says. "They need to have a lot of knowledge about credit cards. They are getting [card applications] sent to them in high school now," she says.

Houser says hands-on lessons are most likely to stick with children. For example, take children to the bank and have them fill out an application for a savings account, she says. Or help them start and manage a small business, such as a lemonade stand or selling homemade crafts. This leads to discussions of how much it costs to make their product and what they should charge for it, Houser says.

Lessons don't need to be complicated. They just need to be taught, experts say.

"Personal finance has become much more complicated," Duguay says. "Young adults have to make a lot more decisions about their finances than their parents [did]. Parents didn't have to worry about access to credit cards - they couldn't get them."

Do you have a personal finance issue of general interest that you would like to see addressed in this column? Contact Eileen Ambrose at 410-332-6984 or by e-mail at eileen.ambrose@baltsun.com.

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