Kids and the Money Crunch

Kids aren’t dumb. They know money’s tight these days. The financial crisis provides the perfect opportunity to school your kids on money. Seize the moment!

A few days ago I was speaking to a group of parents and their children about managing money in a recession. I remembered speaking with this same group a few years ago, and I couldn’t help but notice how the young people’s attitudes have changed.

A teenage girl in the group remarked about the “totally fly jeans” she just purchased at a local consignment shop. Another bragged about being able to find a job in this bad economy and how she is going to help her parents pay for her “first choice” college.

When I spoke to this same group in 2007, one mother’s story stood out. Her 8-year-old daughter had just announced that she wanted a “flatter stomach and smoother hair!”

I always mention this story because this girl’s mother really “got it right” in her response to her daughter. She said, “This is about money. Someone is betting that they can convince you that you need those things. They are betting that they can talk you into giving them your money to get them. You are smarter than that.” Her mother says the now 10-year-old is constantly pointing out how ads try and “Trick us into giving them our money” and refuses to give in.

Just like those teenagers now shopping at consignment stores and thinking of savvy ways to help pay for college, most kids today are completely hip to the fact that the economy and the ways in which we handle money have changed. They see their parents and primary caregivers cutting back versus living beyond their means like they were before the recession. Everywhere they turn someone is talking about money, and not in the “spend this, get this, gotta have this” way they have been used to. Even advertisers are talking about saving and smart shopping versus excess and wild spending. As a result, the “I don’t have to worry about money, mom and dad will take care of it” perception is being replaced by “mom and dad have to cut back and need my help.”

Parents have a real opportunity right now to help their kids develop healthy money habits.

Getting a good start requires three things: example, experience, communication.

Research has shown that one of the biggest influences on how we handle money as adults is how we see it handled when we are growing up. It is imperative that you “walk the walk” when it comes to responsible financial behavior.

Parents and primary caregivers need to ask themselves:

What is the most important lesson we want our child to know about money?

What are the financial behaviors we want them to avoid?

What do we want our child to know about: saving, debt, investing?

Then determine what you need to change in your own behavior to be the example your kids need.

When it comes to experience, zero in on age-appropriate lessons.

When your child is between the ages of 4 to 8:

·        Start a “penny jar.” Make it a big glass or plastic bottle. Your child will get a thrill out of saving until they see that the container is full.

·        At approximately age 7, give your child a weekly allowance and have the child put the money into three containers: saving, sharing, spending.

Ages 9-12

·        Go to the grocery store with a certain amount of money. Your child can keep a running tab to see if you will have enough money to buy it all.

·        Have your child open a savings account. Stop by to make deposits and withdrawals. Get a tour of the bank.

Ages 13-15

·    Expect teens to have regular employment each year.

·        Put family bills on the kitchen table and review them with your teen.

Ages 16-18

·        Teach them how to responsibly use credit cards. Show them one of those debt calculators on the Internet, so they can see how long it will take to pay off credit card debt and how much it really costs.

·        Help them clarify their goals and budget for them.

Some of these tips may feel uncomfortable, especially if you’re not practicing what you preach. So do what makes you comfortable. Your kids don’t need to know you borrowed $10,000 from Uncle Leroy, but you want to give them a sense that family goals have to be saved for. Bills have to be paid.

Also, don’t speak in vague terms such as "Save more, spend less.” Think of it as helping develop good study habits. You drill into them at every opportunity why it’s important to learn and how education will affect their lives. Do the same with money. If you value living within your means, for example, explain why in your actions and words. Challenge them. Make them explain why they want to spend and why they think it’s important.

The mothers of the two teens I mentioned—the consignment shop shopper and the boastfully employed girl who will help pay for college—were beaming with pride.

They had no idea their once spend-happy daughters could be so creative when it came to cutting back. Our kids understand that economic times are tough, and many are rising to the challenge. Let’s capitalize on this priceless opportunity to help them create a more financially sound future.

Stacey Tisdale is a veteran on-air financial journalist. She's the author of "The True Cost of Happiness: The Real Story Behind Managing Your Money." She is also a board member of nonprofit financial literacy organization, Operation HOPE.