Young people should learn to manage money early on

Parents need to consider allowance as teaching tool, not reward for work

Family Matters

April 18, 2004|By Rene A. Guzman | Rene A. Guzman,New York Times News Service

At last, Jake Logsdon can reap the rewards of his savvy money management.

The 9-year-old squirreled away $150 in birthday checks and allowance for a $200 electric scooter. Mom said she'd kick in the rest, so here they are at Toys "R" Us picking out Jake's dream machine.

While his twin sister, Lauren, zips about on another scooter in the toy store showroom, Jake contemplates how he saved so many rolled up bills and loose change in a tiny Ziploc bag. After a long pause, he gives an aw-shucks shrug. "I can't save," he says with a shy grin.

His proud mom begs to differ. "He did pretty good," says Nancy Logsdon, 52.

Money management. It's a life lesson kids should learn as soon as they're collecting allowances or picking out piggy banks. It's also a lesson kids must often learn outside the classroom.

Dara Duguay, executive director of the Jump$tart Coalition for Personal Financial Literacy in Washington, D.C., says in a recent statement that while interest in financial literacy in public schools is apparently surging, only 15 percent of high school graduates nationally have taken a course covering personal finance basics.

In an effort to boost kids' budgeting brainpower, Jump$tart has declared April as Financial Literacy for Youth Month. As any financial expert will tell you, it's always a good time for children to get smart about money.

"The whole numbers around financial literacy for children [are] almost frightening," says Kathy Bolner, senior vice president of Wells Fargo community banking in San Antonio. "Ignorance is going to be incredibly expensive in their lives, just as in ours."

Such ignorance isn't bliss for high school and college graduates. Wells Fargo estimates that nearly 90 percent of the nation's high school students graduate not knowing the basics of money management. The Treasury's Office of Financial Education says individuals under age 25 are the fastest-growing group filing for bankruptcy.

That doesn't surprise Nancy Logsdon, an elementary school teacher in Boerne, Texas. "Most schools don't teach money management," she says.

Hey, little spenders

Yet while teens and young adults are often the fodder for marketers and analysts, so-called "tweens" (kids ages 8 to 12) are the ones spending their way toward the front of the checkout line. According to 1999 figures by MarketingSherpa, Inc., a media company that serves marketers, tweens are a $260 billion market in the United States.

Granted, the bulk of that comes from parents' pocketbooks, but tweens still spend $10 billion of their own money. A recent USA Today article says experts peg tweens as having an annual buying power of about $85 billion.

That's a lot of piggybanks ripe for the cracking. All the more reason that financial smarts are a must for elementary and middle school-age kids.

"I think that's what it's really all about with children -- developing habits early," says Jim Garrett, a certified financial planner at Money Managers Inc. in San Antonio. "If they spend every dollar you give them, then they really haven't learned anything."

Garrett says children have time on their side, so it takes a lot less money now to teach them valuable saving and spending habits for the future. "But it only works if they develop those good habits early," he says.

More banks understand that and are taking steps to reach younger potential bankers. Wells Fargo, for instance, offers "Hands on Banking," a free public service initiative designed to teach basic money skills to consumers in the fourth grade on up. The program is available in English and Spanish on a free CD-ROM, as well as on printed handouts and online at BankingOnOurFuture. org and ElFuturoEnTusManos.org.

Wells Fargo volunteers often present the program in classrooms and community centers.

"I think we're all in that same boat that we could all do a better job of managing our finances," Bolner says. "Parents, too, have that responsibility."

Consistent cash flow

As any financial expert will tell you, Mom and Dad shouldn't wait for schools to show their kids how to manage money. That's why an allowance is considered more than just cash for cleaning up the bedroom or mowing the lawn. It's a valuable teaching tool.

Thing is, most parents strictly associate an allowance with work. If kids don't do their chores, they don't get the cash. It's simple logic; you don't get something for nothing.

Yet many financial experts recommend that parents give kids an allowance regardless of the work they do for it -- along with appropriate discipline for shirking chores or other responsibilities. A consistent cash flow helps children grasp the concept of budgeting and saving.

Hollis Page Harman, a personal financial planner in Los Angeles, sees it like this: Parents are going to spend a certain amount of money on their child anyway. Why not just give the child a regular portion of that so they can learn how to manage money?

"Let the child make some decisions and be empowered to succeed or fail about making decisions," says Harman, author of Money $ense for Kids (Barron's, $10.95 for June 2004 edition).

Yes, she said fail. Don't be afraid to let your child make spending mistakes that they can learn from. At this stage in life, the consequences of blowing a week's allowance on Gummi Bears or Hot Wheels is nowhere near as distressing as splurging at the mall when you should have paid the utility bill."

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