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TALKING
TO KIDS ABOUT MONEY As parents we know that we need to teach our kids how to handle money --someday, but most of us don't know quite how. Besides, money is a loaded topic. In this interview, Jayne Pearl provides practical advice about allowance, buying decisions, part-time jobs, career planning, credit cards, saving, and volunteering. Her recommendations are relevant for parents of toddlers to teens. Jayne Pearl, the author of Kids and Money: Giving Them the Savvy to Succeed Financially (Bloomberg Press), is the mother of 15-year-old Ryan, and is a freelance business writer and editor based in Amherst, Massachusetts. She has worked at Forbes magazine, in public radio, and was editor of Tom (In Search of Excellence) Peters' newsletter. You can learn more about her "How to Gimme-Proof Your Kids" seminars and workbook at www.kidsandmoney.com. CreativeParents: What is the biggest mistake parents make in teaching their kids about money? Jayne Pearl: The biggest mistake is that they don't talk to their kids about money at all. They may be too busy or feel they don't have enough knowledge. They sometimes feel that the world of finance is so complex that it's mind-boggling making decisions, or that they haven't handled decisions well themselves. In any case, by not talking to their kids they are missing an important opportunity. CreativeParents: What would you say to those parents who feel that they haven't made good decisions about their own handling of money? Jayne Pearl: Parents and kids can learn together. Parents don't have to be far ahead of their kids on the learning curve. Parents can refer to their own weaknesses and mistakes to help their kids learn. CreativeParents: What about parents who DO talk to their kids -- what mistake do they make? Jayne Pearl: The mistake those parents make is that they unnecessarily complicate things. For instance, some parents tie allowance to chores, behavior or grades. If the kid doesn't do his chores he gets docked. Instead, the consequences need to be related to the chore or task --for instance if your son hasn't done his homework, you won't drive him to his friend's house. Allowance is "learning capital" and provides kids an important opportunity to learn about money. If kids are constantly being docked they don't get to learn. CreativeParents: How do you instill in kids appropriate values -- understanding that money is important, but helping to keep it in perspective? Jayne Pearl: In our society the importance of money has been blown out of proportion. We live in a consumer -oriented society and money is sometimes seen as a symbol of success. Many parents don't realize how out of balance that is. We are both the victims and perpetrators of that way of thinking. We need to talk about how we are making our decisions. We can help kids hear our inner dialogue to learn our thoughts regarding spending and saving. CreativeParents: How do you help kids make good decisions? Jayne Pearl: My son Ryan and I made up the Meat and Gravy Game when he was young, to distinguish between what we need and what we want. The meat is what we need, and the gravy is what makes the meat taste better. When we're trying to decide whether to buy something we ask ourselves "Is this meat or is this gravy?" Kids need to learn that they can't have everything they want. There are always going to be trade-offs. CreativeParents:What are some of the money-related decisions kids will have to make? Jayne Pearl: Educational choices may make a difference in how much you earn, so it's important to be aware of the economic consequences of getting one degree versus another. Being able to earn money is a necessary skill. Being able to save is another. In The Millionaire Next Door the authors,Thomas J. Stanley and William D. Dankeo, found that most of the millionaires he interviewed were plumbers or merchants. They saved, took modest vacations, didn't trade up homes, and their money worked for them in making them secure. Many of the professionals spent more than they earned and when they retired they took a major hit in lifestyle. If you are a creative person you still need to have business savvy. My friend told his college-bound son, who wanted to study music, that no one can tell Billy Joel he needed more piano lessons. Of course there's always more to learn, but what he really needed were some basic business skills, which might have helped protect him from a dishonest business manager who ended up stealing millions of dollars from Billy Joel. My friend's son is now studying music engineering, and also taking some business classes. CreativeParents: How do you help kids become responsible about saving? Jayne Pearl: In workshops I ask parents how many save. Only a few hands go up -- maybe 10%. It's hard to tell kids to save when we don't do that. But we can help our kids set a goal, something they are saving for. We want them to have a habit of saving, and one of the best ways is to give them an incentive to save. CreativeParents: What about decisions about spending? Jayne Pearl: You need to let kids make their own decisions, their own mistakes and then let them "enjoy" the consequences. Part of the point of allowance is that it gives kids practice when the consequences still aren't huge. When kids say "It's my money" about their allowance, they are right. But parents have the right to set rules. Kids can be banned from buying violent videos or inappropriate clothes. When it comes to things that aren't harmful I suggest the "one comment rule." A parent can weigh in with a judgment, such as "that shirt looks shoddy," but only say it one time. CreativeParents: What other lessons can a parent convey about being a smart consumer? Jayne Pearl: Kids need to be encouraged to save receipts so they can return something if it's damaged or they change their minds, but also to help them track how much they spend and where they spend it. . They need to ask how much something is before making a commitment, for instance, how much a repair is going to cost. In general kids need to learn to compare, ask questions and think about what they are buying. CreativeParents: What if they make unsound decisions? Jayne Pearl: Remember that allowance is their learning capital and that this is a learning process. There are some things they may not learn unless they make mistakes. Your role is to be the coach. CreativeParents: How much allowance do you recommend for kids? Jayne Pearl: The allowance should reflect your child's increased financial responsibilities. You can start by keeping track of how much you shell out for your child each week. Add up the videos and fast food and so forth. Make a distinction between discretionary and non-discretionary spending. The non-discretionary spending is for things that are essential, such as lunch money or shampoo. The discretionary spending is for the gravy -- the DVD or comic book. Kids need to have some money that will let them buy some discretionary items -- what's sometimes called "mad money." But they also need to begin to pay for some of those necessary, non-discretionary items. For instance, I started having my son pay for his own haircuts, school lunches, and toiletries, to name a few things. It's important for kids to pay for some of the basics. If all they have ever had to use their money for was stuff they want --CDs and other fun stuff, it's a big shock when they grow up and learn that they must set aside money for gas, insurance, phone bills and so forth. During the course of their growing up the idea is to gradually transfer more responsibility to them. Kids can begin to think in terms of making a budget. It's also great to let kids manage on a monthly allowance eventually, to force them to get into the habit of planning. CreativeParents: What are your feelings about kids working? Jayne Pearl: It's a good way of learning, but you need to look for signals if it's not going well. When kids work they suddenly have a lot more money and are exposed to a more adult world. You need to make sure that their grades aren't slipping and that they aren't being propelled into a different set of values or relationships with adults who are not good influences. CreativeParents: Any other cautions about older kids and money? Jayne Pearl: Two under-discussed issues that I discuss in my book are gambling and shoplifting. Parents need to be aware that gambling has become a big problem on high school and college campuses. Kids sometimes get into debt and become subject to pressure and threats. Shoplifting is also a problem. Sometimes kids shoplift because they feel they have been ripped off by "life" and want to get even. Parents need to talk to their kids about the consequences of these activities and keep their eyes open. Don't sit back if your child has money or jewelry and you don't know where it came from. CreativeParents: What is your view of credit cards? Jayne Pearl: Credit card companies try to get kids to sign up for credit cards when they sign up for college classes. Some kids get into big trouble. I know of a kid who became ill and couldn't continue his college job. He'd maxed out his credit card and almost declared bankruptcy. That's quite a way to start out in life, with a mark on your record. His mother bailed him out, but when he ran up his card and couldn't pay a second time she didn't. It may seem counter-intuitive, but parents may want to get their teens a credit card while in high school, to help them learn how to save receipts, check their monthly statements, and get into the habit of only charging what they can afford to pay off completely each month. If they learn to be responsible with credit early, they may be less likely to get in over their head later. CreativeParents: When is a good time to convey messages about finance to kids? Jayne Pearl: There are opportunities in your day to day life that can apply to kids as young as three or four. For instance, you can look at the values in a sitcom family. Bill Cosby presented values in a positive way, but some sitcoms portray acquisitiveness, lots of dressing up; product placement. Kids are barraged with commercials --- as many as 1,000 a day. There's a great video called Buy Me That: A Kid's Survival Guide to TV Advertising, produced by Consumers Union ($29.95, 800-262-8837) which describes the deception that goes on in commercials. Some countries ban ads on TV for kids, but in the US we assume that kids are fair game. Once you've learned how commercials are made, when you watch them together you can point out the tricks. CreativeParents: How do you encourage kids to think beyond their own needs and be aware of charitable giving? Jayne Pearl: Kids need to get into the habit of giving to charitable causes. They can be encouraged to give money or collect money for a cause with which they have some connection. For instance, if there is a disease that has afflicted a member of the family or there is a flood that they have heard about , the about the contribution they are making will be especially meaningful. Parents can save all the solicitations they get in the mail and once or twice a year let their kids help them decide where the parents will contribute. Volunteering together is very powerful. In the case of divorce, when a child spends time with a non-custodial parent, one of the greatest ways of bonding is to volunteer together for an hour or two a week, on an on-going basis. In all families, volunteering together is a great way to instill sound values. To link to Jayne Pearl's Kids and Money website go to kidsandmoney.com If
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