Archive for the ‘Money Teaching’ Category

How Can Your Child Build up a Credit Score?

Thursday, June 18th, 2009

I am sure you have seen those ads, where Credit Card companies or Banks offer you FREE credit cards for the rest of the family. All of these credit cards are linked to the same bank account.

Initially this may seem like a good idea, you will get to those air-miles, fly-buys, or other bonuses faster and your kids will just pay you back right?

What is this teaching our kids?

That it is cool to spend their parent’s money, because they will bail them out anyways.

Imagine having a credit card with a limit of $10.000, $12.000 or $15.000, some folks may have a limit up to $25.000. The credit limit on the main card is the amount of money your children can potentially spend;  Your Children can spend your credit quite easily if your kids haven’t got a clue about money. Why don’t you just give your children a blank, signed check or the whole check book in fact.

This is not teaching our children anything about money, financial responsibility or good money habits for that matter, at all; The only ones benefit from this are the credit card companies.

You as a parent may end up losing the good credit score you have built up over the years.

There are other ways for your children to have access to a credit card. At the same time, you want them to build up a credit of their own.

One idea would be to get your children a credit card of their own. Linked to their own bank account and have a small limit of say $500 or $1.000, depending on how responsible your kids are. This way, when your kids keep up with the payments, your children will start building up a credit score of their own. If they don’t pay back on time, they won’t build up a huge debt. Just keep an eye on those interest payments when your children don’t pay on time.

An even better idea is to have your kids have a “secured” credit card linked to their own bank account. This means that your children need a certain amount on their account, which they are not allowed to use, as a security against the credit limit of the credit card. This way your kids will never over-spend on their card and your kids still build up their credit score. Your children will still need to make sure they pay their card in time, every month.

Building up a good credit score is very important later in life when your kids are buying a house or other bigger purchases. The mortgage rates and conditions are far better for people with good credit scores than the ones with poor credit scores.
The reason for this is that people with good credit scores have paid their credit cards on time and have a skill called, money management. Banks and other lending facilities will consider this as a sign of low risk for lending out money, therefore the conditions are more favourable for people with a good credit score.

I believe that having a credit card is not a bad thing, as long as you start off with a small limit to teach your kids responsibility with money, and make sure they pay the debt off each month.

On most TV shows, people are advised to cut up their credit cards. This does not solve the problem, the next credit card offer will be in the mail the next week. In the end it all comes down to proper money management.

These are just a few of my thoughts on this matter. I’d love to hear some of your ideas, suggestions or questions on the subject.


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Do Your Children Understand How to Manage Their Own Money?

Tuesday, June 16th, 2009

The majority of teens are unfamiliar with managing money and investing for their future. Many parents believe that it is only a parent’s duty to provide for their kids and never allow the children to worry about money or even take part in bringing any money in. This way of thinking is unnecessary for responsible parents today.

It is more important than ever to teach your teens about money management strategies that will help them understand the value of the money that they earn.

Parents are the ones that must provide this financial education, which is not taught in schools. In order for kids to be fully prepared for the world, they need a money management strategy that will help them grasp some of the basic concepts of sound financial planning.

This doesn’t mean that parents should give their children an allowance in order to teach them to manage their money. There are other ways. When they get an allowance, and they find out that they will get it regardless every week, the whole point of teaching them to manage their money is gone and your kids won’t treat the allowance as their own money.

Kids can earn their own money and this will teach them early on how to manage their money. When children earn their own money they will be filled with pride and a sense of accomplishment that cannot be provided by merely handing them money.

Your kids will have a better appreciation of the money that they have, and they will automatically manage it better.

For many teens, for example, buying a car is their first major investment. Only a select few understand the true cost of ownership. I remember buying my first car, the actual cost to buy the car was just the beginning.

Most teens don’t even think about expenses such as maintenance, repairs, gas and insurance. No one ever mentions those items, well, maybe they have heard people talk about the price of gas.

As a parent you could break down all of the expenses for your teen, from the insurance premium, the road taxes, how much gas you need to travel a certain distance and the cost of general maintenance.  I am sure this will make your teen think twice about the car he or she is about to buy, and appreciate the fact that you have taxied them around all these years.

Your teen will need to understand there are many factors to consider when they make a financial decision like buying a car.

With the breakdown of all the expenses you did with your teen, together you can now come up with a plan to manage the money he/she needs to be able to afford a car.

While teens who rely on the family gas card don’t give it any thought when it costs $50 to fill up the tank, teens that pay for their own gas are well aware of the price of a gallon or liter, and they will make sure they manage their money in such a way that they can afford to use their car.

This is just one of many examples of how children and teens can learn to manage their own money.


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Why Should We Teach Our Kids About Money?

Tuesday, June 16th, 2009

I am constantly asked why is it so important to teach our kids about money?

Shouldn’t we just let our kids be ‘kids‘ and let them worry about money after they become an adult?

Some people say, “Lisa is so young. I want her to enjoy being a child. Money is a worry for grown ups, not kids.”

These are very good questions and I totaly understand why worried parents ask this.

I say, “We’re raising a whole generation with ’sucker’ stamped on their foreheads because we as parents are not teaching our Kids about money”.

We assume as parents that their schools will teach our kids everything they will need to know to be able to become independent grown ups but we forget that ‘teaching kids about money’ is not in the curriculum.

Your job as a parent is not just to keep your kid happy. You’re raising a future adult who needs to be able to deal with grown-up  matters. If you teach little Timmy how to handle money responsibly, then as an adult, Timmy will be better equipped for a richer life.

Look at the statistics below:

  • 19% of Americans between the ages of 18 and 24 declared bankruptcy in 2001. (USA Today, 2001)
  • The fastest growing group of bankruptcy filers are those people who are 25 years of age or younger. (Senate Committee on Banking, Housing and Urban Affairs, 2002)
  • Over 80% of undergraduates have at least one credit card and nearly 50% of college graduates carry 4 or more credit cards. According to the Department of Education, the average balance carried by these students is more than $3,000. (Senator Chris Dodd, CT)
  • Did you know that the number one reason that young couples divorce today is because of stress about money?

These statistics tell us that many children aren’t being taught how to handle their money. Young people are often making mistakes with the zeros at the end of their amounts. These mistakes sometimes take years to overcome. Teach your kids how to handle money while they are young, and they won’t make mistakes later on in life.

As you can see it’s vitally important for us to be teaching our children about money now, while they are young enough to build good financial habits.

That is why I now am actively teaching my children about money.

So where to begin?

I simply suggest you start  by encouraging your child to come up with a creative way to earn their own money, so they will feel the pride they deserve from their own efforts.

Then I suggest you encourage your child to split their money into Four categories (or piggy banks):

  1. Savings (for that rainy day emergency)
  2. Investing (you can start them off with simple small stock investments in quality stocks)
  3. Charity (teach your child now while they are young to donate some of their money to assist others so they won’t turn into Scrooge! AND they will get an incredible sense of responsibility toward humankind and nature, and that will only strengthen their characters and help them in their day to day battles in life)
  4. Spend the rest, FAST! (let them feel the rewards of their hard earned cash quickly so they stay excited to continue along this entrepreneurial path.)

I hope this has been helpful and look forward to hearing your comments or other suggestions.


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