Think Money Grows on Trees?

Teach children the fundamentals of handling money.
By John D’Angelo

Most children tend to have far-fetched ideas on the fundamentals of money—such as believing that obtaining credit is like ordering a happy meal and savings only happen in malls the week after the holidays. To fill in the gaps in their financial education, parents should teach their children the fundamentals of handling money. The following basics of financial literacy are a good place to start:

Time Value of Money
One of the most basic of all financial concepts is the time value of money. Children should be shown the benefits of saving money, watching it grow, and patiently deferring purchases until a future time. When children get older, they can learn the reverse discipline: how debt today results in accumulated interest costs down the road. Show them a loan amortization schedule for a typical car or home loan to illustrate the point—that will surely get anyone’s attention.

Transactional Skills
Your children will someday need to know how to write a check, use a debit and/or credit card, and how to bank online in today’s cashless society. When they are ready, take them to your local bank, introduce them to an assistant bank manager that will open a checking account and bank card for them. Children will appreciate the sense of pride of responsibility, and they will learn how to navigate an ATM or bank Web site the right way, not just the way mom and dad does it.

Keeping Good Records
We all likely need help in this area, but children probably need your help more than you think.  Knowing how to reconcile a checkbook and track where they spend their money is a valuable life skill. I believe schools should start teaching this as early as middle school as part of a normal curriculum. Developing a system for safely storing receipts, warranties, and other valuable papers is also important. When they begin driving, point out the location and importance of the vehicle’s proof of insurance and registration.

Reflecting Your Values
Like any other area of life, you may want to pass down cliché’s that have guided you financially.  Succinct phrases often suit this purpose quite effectively, such as, “save for a rainy day.”  Or, “don’t place all your eggs in one basket” and of course “a penny saved is a penny earned.” Such sayings, despite however corny they may be, might just remind yourselves and your children of something important tomorrow.

Those who value philanthropy should consider including their children in the charity selection process.  Teach them why certain causes are important to you, and how you determine the amount to give. Perhaps you could give your children gifting discretion over a small sum of charitable dollars.

Investments 101
The day will eventually come when your children will be ready to talk investments, retirement, and taxes. Avoid intimidation by contacting our firm, which can assist you and your children with these advanced topics. Being financially educated is not child’s play. (But then again, neither is being a parent.)

John D’Angelo is the Shareholder of D’Angelo and Company (www.dangeloco.com).