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By Adam Zoll | 12-04-2013 03:00 PM

Some Curveballs in Teaching Kids About Money

Newer forms of currencies, such as gift cards, and big in-store promotions can make it difficult for children to attain a clear notion of money and saving, says consumer advocate Eleanor Blayney.

Adam Zoll: For Morningstar, I'm Adam Zoll.

Teaching your kids about financial responsibility can be a challenge any time of year, let alone during the holidays. Here with some tips is Eleanor Blayney; she is the consumer advocate for the Certified Financial Planner Board of Standards.

Eleanor, thanks for being with us today.

Eleanor Blayney: Thank you for having me.

Zoll: What are some of the basic skills that parents can teach their children about being financially responsible, and what are some ways that they can go about doing that?

Blayney: One of the best ways to teach children about financial responsibility is to be financially responsible yourself. Kids learn by seeing what their parents are doing. So, if money is a real stressor in your household, an occasion for arguments and difficulty in communicating, well, obviously, these are not the lessons we want our children to learn. So, it's cleaning up your own financial act and also finding ways to talk to your children about money.

Today, I think, a lot of kids have a very unclear notion of what money is, probably because there are so many forms of currency that they can use now. For example, it's no longer just the quarter or the bill that I got once upon a time as an allowance. [Today,] they have gift cards, you can put money on your phone. It's very digital, it's very virtual, and hence not very real.

Zoll: Are there specific ways you would recommend--for example, maybe as you are making a purchase at a store or paying a bill--showing the child exactly what you are doing to help reinforce the financial implication of the action that you are taking?

Blayney: There are. It's all in talking it through. For example, when you take a young child grocery shopping, I know it's hard, but if you can talk through some of your decisions. You are standing in front of an array of cereals, and you can maybe articulate while your child is standing there, why might I pick this brand over that? Or talk about a generic label rather than a brand label. Talk about prices and quality, and give them some of the dimensions of making a financial decision and some of the trade-off that we all make. I think young elementary school kids can understand that.

I think another really good modeling behavior is shopping with a list and having the child help you with that list, either compiling it or monitoring it as you go through your shopping excursion or through the grocery store. A list is a really handy tool. It's a very primitive form of budgeting, which is also an important strategy and discipline to be teaching our children. Shopping with a list and keeping within a budget.

Zoll: Given that this is the holiday season and people are focused on gifts--spending money, not so much about saving money--are there specific ways to not take your eye off the ball in terms of teaching financial responsibility to children?

Blayney: Yes. You don't want to be overzealous--it is Christmas after all and kids are kids, and it's a wonderful time of the year. But nevertheless, I have a couple of ideas that I'm rather partial to. One is, explaining to them how savings work when you're shopping. I think it's really confusing when a kid walks into a store and sees that they are going to save 50% on an item, and you're seeing that all the time in the big holiday sales and not realizing that that's not in fact money saved. It's simply money not spent. I think it's really easy to come home and say, "Look! I saved all this money," when in fact you really haven't put any money aside whatsoever.

Also talking about how there are all these sales to get you to buy, and this can in fact get you to buy more than you intended or spend more than you intended. Turn them on to some of the retailing tricks of the trade to get them more sensitive to what it means to shop smart.

Zoll: Are there particular kinds of gifts that you think are more likely to encourage financial responsibility than others during the holiday season?

Blayney: Yes. I want to talk specifically about the whole growth of gift cards and how often we use gift cards as a way to avoid giving a child cash or money. I guess for some reason, [giving cash] doesn't feel as nice. But I really am a big proponent of giving a child cash as opposed to a gift card, which sends them to a particular retailer to spend all the money or not to spend it, but to have an unused balance. We all know that the gift cards benefit the retailer primarily.

But when you give a child cash, the child now has the occasion--and you can help them think this through--of using that cash for more than one use. Maybe using cash to buy themselves something they really would like, to save some of the cash, and even maybe give away some of the cash. We all know money has multiple purposes, and responsibility comes in learning how to juggle those various purposes. A gift card tells me, go spend the money. A gift of cash gives the child an opportunity to learn that maybe I should be saving some, and using some, and even possibly giving some away.

Zoll: Those are certainly wise tips, especially for this time of year. Eleanor, thank you so much for your time today.

Blayney: You are absolutely welcome. Thank you, and have a happy holiday.

Zoll: For Morningstar, I'm Adam Zoll. Thanks for watching.

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