Christmas can be good time to teach kids about money
When kids reach a certain age and they begin to question the existence of Santa Claus their doubts often center on the unlikelihood of an old guy with a beard traveling around the world in one night in a sleigh powered by flying reindeer. After all, such a feat defies the laws of biology, physics and common sense.
But we don’t typically hear another question that lends equally to the implausibility of Santa’s mission: How does he pay for all that loot?
Of all the subjects that we focus on when raising and educating our children, money management can often get short shrift. I realized this many years ago when I went with my son to apply for his first credit card and found that he was struggling to understand some basic concepts regarding debt. I had failed to adequately prepare him for that moment.
As the holidays approach, parents are presented with some great opportunities to give memorable financial lessons to their kids — lessons that can be delivered from the time children are very young and continue well into their adulthood.
“To be honest, it’s never too soon to start talking to your kids” about financial responsibility, said Julie Johnson, senior wealth advisor at Beacon Pointe Advisors in Newport Beach.
Children as young as four can be taught the value of money, Johnson said, noting that parents can use otherwise banal activities such as grocery shopping to impart lessons in engaging ways. For example, a parent could tell a child that they have $10 to spend on one or more items. Then their choices can lead to a discussion about what else they might have selected for the same amount and whether their initial selection was the really the best use of that money.
Johnson also recommends starting kids out with allowances at young ages, but with strings attached. If their clothes aren’t picked up and put away, for instance, they might lose their allowance that week. Giving children a small amount of money on a regular basis can also teach them, with parental guidance, about the value of saving for something big and important versus spending any available cash immediately on items that might not be as gratifying over the long run.
As children get older, parents should introduce more sophisticated financial concepts and responsibilities, such as how — and how much — to save; the practice of allotting only a small percentage of income to discretionary spending, and the importance of never charging more on credit cards than can be paid off each month.
Kids can also learn about financial responsibility by taking on age-appropriate jobs. Johnson’s 10-year-old son, for instance, earned $150 by cleaning neighbors’ trash cans.
Doug Frazier, a certified financial planner at Pence Wealth Management in Newport Beach, said it’s a bad idea to just give kids money freely. Instead, they should earn money by completing household chores and other tasks, after which they can be allowed to participate in buying decisions. He suggests having kids be a part of family financial discussions so that parents can demonstrate the kinds of choices they must make.
Pence recalls the lessons his own parents taught him when he was young. They set up a savings account for him, and every birthday and Christmas when he received cash gifts he’d deposit the money into the account. His parents would then help him track his savings and the interest he earned.
Parents should explain to their children “that money is a tool to be saved, maximized, and then used for good decisions,” he said
By the time children enter college, Johnson suggests creating an “expectation statement,” which is basically an agreement about what parents are willing to finance in exchange for their student’s meeting a certain level of accomplishment.
At this time of year, Christmas gift-giving presents an ideal opening for parents to discuss money-management strategies with their children, and demonstrate to them how they prioritize needs over wants.
When they are Christmas shopping with their parents, kids need to be shown that swiping a card might look easy but that it comes with a cost, Pence said. At the end of the month, a bill will be due and it’s crucial that the cardholder have the ability to pay it on time.
For their own gift-giving, kids should be taught to set a budget and then stick to that budget, and be encouraged to consider inexpensive items that are thoughtfully chosen or creative home-made gifts.
Kids should also be coached to keep their own expectations realistic. If a child asks for an iPhone 6s for Christmas, and parents determine that there’s no way that’s going to happen, Johnson suggests another idea that I just love: Give the child a few shares of stock in a company they know well such as Apple or Disney. That way they’ll have something of (hopefully) long-term value, and could learn about investing in the stock market by tracking the share price over time.
Another idea Johnson advocates is having children, if they’re able, donate a certain percentage of their Christmas money to a charity of their choosing. Santa might have flying reindeer and unlimited credit, but even he needs help filling every stocking.
Have a merry, and fiscally prudent, Christmas.
PATRICE APODACA is a former Newport-Mesa public school parent and former Los Angeles Times staff writer. She lives in Newport Beach.
