Credit Basics
Hard times: Children pitch in when parents share truth about budget crunch
Posted on Sat, May. 17, 2008
BY GAY BROCK
Rachel Jones, 12, makes dinner with her mother, Michele, in their
About a year and a half ago, Michele and Bill Jones of
''Here is what everything costs,'' they said, spreading out the bills. ''And here is what we make,'' they said, spreading out the paychecks.
With the rising cost of living, they wanted the children to learn about money: how to earn it, how to spend it, how to save it. They would pull weeds or wash the car or, if old enough, work to earn money to pay for half of all their extraneous expenses.
When one year later Bill Jones lost his job as a buyer for an air conditioning company, the planning paid off -- financially and emotionally. Though their dad got another job two weeks later, the children, now ages 9 to 16, say their parents' honesty helped them understand the situation. And they learned some important money lessons, too.
''Only buy things on sale, and don't buy stuff you don't need,'' says Rachel Jones, 12.
As recession looms, many
More than one million American families are projected to file bankruptcy in 2008, according to recent data collected by Harvard professor Elizabeth Warren, who co-authored the 2003 book The Two Income Trap: Why Middle-Class Mothers and Fathers are Going Broke.
'Since 2000, more children have lived through their parents' bankruptcy than through their parents' divorce,'' she says.
Yet parents traditionally remain tight-lipped about family finances. The silence can do more harm than good, says Howard Dvorkin, president of Consolidated Credit Counseling Services in
''Keeping the kids in the dark oftentimes will scare them far more than if they know the reality of the situation. Children tend to escalate problems in their minds if they don't have the facts and may think things are much worse than they are,'' he says. ``A child who frequently hears her parents talking about being broke may think that he or she will soon be homeless.''
''How do you tell your children you can't go to McDonald's this week? Just tell them the truth,'' he says. ``Parents don't give their children as much credit as they should. They do have an understanding of money.''
How the message is delivered depends on the child's age, personality and developmental level,
''Set the example by denying yourself something, and let children sacrifice, too. They can learn an important lesson about not needing to buy things to be happy,''
When Ruiz told his daughter, Christina, their budget could not include money for a fast-food meal and a movie she had requested, she offered to make sandwiches and go to the park instead. Picnicking, biking and nature walks are now a weekend ritual for the single father and his 9-year-old daughter.
In the Jones household, the family ritual involves meal planning, budgeting, shopping and cooking dinner by a different child once each week. Michele Jones, a financial services sales associate, has taught her children how to clip coupons and find two-for-one deals. They know to turn off the lights, conserve water and recycle.
''And we don't rush into buying. We have taught them how to budget to buy,'' she says.
If children write down what they want to buy and calculate how they are going to accumulate the money -- through allowances, jobs or gifts -- they then have a tangible goal, Dvorkin says.
They can track their progress on a colorful chart and celebrate with a special meal or outing when they successfully reach a goal.
''Keeping written records of what they've saved, spent and earned can also be helpful for your kids. Not only will it help them manage their money better, but it will also help with their math skills,'' Dvorkin says.
In the Rivera family of Weston, 17-year-old Lana and 12-year-old Ideo keep track of their money online. Lana has a credit card, Ideo a debit card, and both have bank accounts. Parents Lucy and Irby Rivera direct deposit their allowances and the children track account balances.
Though friends have questioned his sanity for allowing his teenage daughter to use a credit card, Irby Rivera says, ``By the time she gets to college, she will realize that a credit card is not a blank check.''
Six years ago the Riveras enrolled their children in a youth savings program through a financial services company available to military personnel. Designed to teach children wise savings and spending habits, the program includes controls that filter out certain types of purchases.
An Air Force veteran turned commercial pilot, Irby Rivera sees the results of parental indulgence in his upper-middle-class neighborhood -- teens driving expensive cars, wearing brand-name clothes and using the latest techie gadgets that their parents give them.
''They have no idea of what their expense footprint is,'' Rivera says.
For the Jones, Rivera, and Ruiz families, the money dialogue with their children will continue through the current economic uncertainty and beyond.
''We still struggle every day,'' Michele Jones says. ``But we live in the now. We plan for the future, but do not worry about it.''
TALKING TO YOUR KIDS
How to talk to children about money depends on various factors: their ages, developmental level and personalities. But the following guidelines offer a general overview of their ability to understand money concepts at different ages:
AGES 2 TO 5
Children this age don't understand the value of a dollar. They beg and plead for things they want. By the time they approach school age, try giving them a dollar at the grocery store and letting them pick out a small snack.
AGES 6 TO 10
The ability to grasp financial concepts is emerging. An allowance is a good way to introduce money management. Allowances can teach the concepts of saving and spending as well as family values. They can put a small portion aside for charity. Including them in shopping and bill-paying is a good way to teach them the value of money.
AGES 11 TO 15
Introduce budgeting. They can itemize things they think their allowance should cover and price each item. Decide what you will pay for and what they will pay for. Increase attention to savings habits. A small part-time job could earn extra money to open a tax-free retirement account.
AGES 16 to 18
Money management skills can now be put to the test. Help them open checking and savings accounts. Show them how checks work and how to balance the checkbook. Move to a biweekly allowance to sharpen their budgeting skills. Let them make mistakes now when you, the parents, are there to help them figure out what went wrong.
19
Avoid letting the teen ''over borrow'' for college. Student loans must be paid back. Warn them of the hazards of the many credit card offers they will get. Explain the importance of establishing a good credit rating.
