Teaching kids about money

Learning how to save money is not a trait that just comes naturally. It’s something that is taught.

We asked a variety of experts for tips on how to teach children the importance of money, budgeting and how to save. We asked for valuable lessons learned as a child and what advice would be good to give an adult who is teaching children about how to manage money. Here is what we found:

In teaching children about money, you need to start early. Children need to know how to set aside money for spending, saving and for charity. As I child, I learned about “needs” vs. “wants” and how to prioritize your wants. At Calamos, we have a “Take your sons and daughters to work day” where we introduce grade school and middle school children to the basics of the stock market and investments. It is never too early to start discussing money and investments with children.

— Jim Baka, EVP, president at Calamos Wealth Management in Naperville.

Creating a budget was the most important lesson my parents taught me as a child. When I was growing up my parents had a weekly budget because my father was paid on a weekly basis and the kids helped determine where a small portion of it went. If we wanted a certain cereal or treat from the grocery store we had to find a way to compensate for it in other areas. If we couldn’t find a compensation, we wouldn’t be able to get what we wanted. It was important for us to learn how seemingly small requests effect the entire household. Whether it is a weekly, monthly or yearly budget for your household, it is important to know where you spend your hard earned dollars.

What advice would you give an adult when teaching children to manage money?

1. Be honest. It can be difficult to discuss past mistakes with money but just as you learned from your mistakes, so will your children.

2. Be patient. Children learn at different speeds and it is important to show patience when they need extra time to grasp certain concepts.

3. Open a savings account in their name at your local bank and teach them how to use a register to record transaction history. This will teach them how things such as interest rates, withdrawals and deposits effect their account balance.

4. Possibly start an allowance program tied to chores around the house. This will not only give them a sense of responsibility but it will give them a way to “earn” money to put into their savings account so they can watch the balance grow.

5. Set an example. Your children will see how you manage your money, pay your bills and set aside money for savings without you even knowing that they are doing it. Be the example you wanted to have when you were young and they will pick up on your good habits.

— Scott A. Adams is a retail banking officer in Crystal Lake at Cornerstone National Bank & Trust Co.

My parents taught us to work hard, save our money and invest it. When I received my first paycheck as a teenager, they helped me open up a money-market fund and my earnings went into that. It was very exciting as a kid to see that my money was making money! When I started my first professional job after college, my dad told me to join the 401(k) plan right away and put the maximum in. Starting retirement savings in your 20s has a tremendous positive compound effect versus starting later in life. This basic practice allowed my wife and me to save for and purchase our own business.

My wife and I teach our children the value of money and to work hard for it. If they want something above and beyond what we provide for them, they need to earn and save for it. They are conservative with their money and when they start working full time we will explain and demonstrate the power of saving and investing right away.

— Brad Jordan, president, owner of Ad-Vantage Unlimited Inc. in Bensenville

I would tell parents the earlier they can explain to their children how to manage money, the better prepared the child will be. I think parents have to be good role models and not spend on unnecessary things as children will see this and think it is OK. You can explain to them how money comes from having a job and how it is spent on housing, food, clothes, entertainment and saving for special items like a vacation, new car or college. You can also explain the differences between a want and a need.

For younger children, you can explain how leaving a TV on or lights on in an empty room costs money. As children get older, you can talk to them about taking some money from birthdays or an allowance and suggest they save it for a larger item in the future. If you are planning a family vacation, I recommend giving the children some money at the beginning of the trip, so they can choose what souvenirs to buy. I have found that they are more likely to think about a purchase if it is their money. Then, let them keep the money they do not spend. Once children are old enough to work, I would have them start investing in a mutual fund by making automatic monthly deposits. Explain how compounding works and that $25 or $50 per month could be thousands of dollars in the future.

Parents often want to give their children everything they can, but sometimes it is best to say no or ask them to think about it for a few weeks first. Children who are used to getting everything they ask for often do not understand savings, and may have a harder time managing their own money as they become adults.

— Dan Fortman, managing partner at Weiss & Company LLP in Glenview

As a child, I saw that my parents both worked hard at their jobs to earn a living. My father never had a sick day in his entire career as a superintendent for a construction company. In teaching my own kids, ageS 12 and 14, about money, I have tried to make sure they understand that if they don’t complete their tasks and chores, they won’t get paid for them. I don’t accept the reasoning, “I will do it twice next week.”

Also, as a teen, I had a passbook savings account at the local bank. I can remember going to the bank once a week to deposit the paycheck from my job at the Elk Grove Village Public Library, where I worked as a library page in the children’s department. I often tell this story (to the kids) about my first “real” job and saving up that money for the stereo that I had to have, and for college. Sometimes those stories hit home with the kids, and they go through a period of being good savers, and sometimes not. I just keep trying to make them see the cause/effect of their actions, and the self-satisfaction that they will find once they achieve their financial goals.

— Susan Nelson, president of Autumn Construction Services Inc. in Des Plaines

My best advice I gave to my two kids was; “Time is your best friend and moneymaker.”

They both started early. They picked one stock each that they just liked, Coca Cola & Disney, started a savings account and a no-load mutual fund and in high school started to see money grow. Then through college saw it grow some more, and now they are in their first jobs and using their money wisely as they look to the future. They get it.

— Richard Derr, franchise owner of Learning Express Toys in Lake Zurich and Barrington.

“Be penny wise, and save till it hurts.”

Keeping finances on track gives you peace of mind that can help with so many aspects of your life, from saving for college, supporting a family, having a good home and preparing for a sound retirement. The habits formed early in life can make a big difference if you are a planner rather than a procrastinator, and I have learned that it’s better to make good plans and stay disciplined. That lesson taught me well and I use that experience with our clients everyday.”

— Terri Cable, executive vice president and head of wealth management in Chicagoland, PNC Bank.