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Teach Your Kids About Money

As a group, children are among the most affluent consumers in the country, spending billions of dollars a year on everything from movies, cosmetics and CDs to clothing, televisions, computers and cars. Fortunately, as parents, there is much you can do to promote smart money habits and teach your children how to manage money effectively. Like anything, learning about financial responsibility should start early. Here are a few tips on earning and saving money.

Earning Money
From the lemonade stand to the neighborhood car wash, chores and jobs are a great way for children to learn how money is made. Some parents teach their kids through a weekly allowance. Make sure to give your child a raise with added responsibilities.

Here are four tips when doling out allowances:

  1. No advances or credit. Both undermine the purpose of an allowance, which is to teach financial responsibility.
  2. Pay on time, the same time each week, such as Saturday morning. Remember, your children's allowance is their paycheck. Don't make them have to beg or remind you.
  3. Don't cut back automatically when your teenager gets a part-time job. This sends a negative message and acts as a disincentive to work. Instead, view outside jobs as a supplement to "base pay" until they become financially independent.
  4. Let them make choices — and mistakes. If they blow their entire allowance in one day and are broke for the next six — tough. That's how they learn. Allow them the freedom to make their own decisions and experience the consequences of how they manage — or mismanage — their money.

Saving Money
Consider opening a savings account in your child's name, and be sure to explain how it works. (Younger children don't always understand; they think you're giving away their money.) Help them identify a reason to save. Socking money away for its own sake is boring, and rarely works. Does your child want a new bike? New toy? First car? Show children how they can achieve their goals by putting aside a little each week. Also, be sure to keep them posted on the account's status, showing them their bank statements and interest earnings. Some financial institutions welcome children's accounts and can make saving fun and educational. Caution: Some institutions tack a monthly charge on small-amount accounts; ask about kiddie accounts.

As children grow older, you might also encourage them to start a savings account and learn about mutual funds. Or, encourage your child to learn about stocks in their favorite cereal or sneaker.

Another way to save is to help them get their IRAs started as soon as they begin working, even with those part-time after-school jobs. Then promote maximum contributions year after year. Your children can contribute 100% of their earned income, up to $3,000 in 2003, regardless of age. Since few working teens will have that kind of money after expenses, you may want to lend them the contribution and then forgive the debt as a gift. Eventually, they can begin paying all contributions themselves, as their salary increases.

You might want to get them a family credit card to teach them about spending wise, and debt. Also, encourage them to participate in family financial meetings, especially when it comes to costs that affect them, such as college education, school trips, or vacations.

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This material is being provided for informational purposes only. Neither New York Life nor its agents provide legal, tax or accounting advice. Please contact your own advisers for legal, tax and accounting advice.

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Teach Your Kids About Money

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