How to Teach Kids About Money: Buying Smart
By Michael Leanza, CFP®
In our second post on how to teach kids about money, we discussed the allowance and spending decisions families can take into consideration when teaching children about money. In the final post, we’ll look into smart buying habits every child should be made aware of.
•Show children how to evaluate TV, radio, and print ads for products
Remind children that if something sounds too good to be true, it usually is. Encourage them to ask question like, “Will a product really perform and do what the commercials say?” “Is a price offered truly a sale price?” and “Are alternative products available that will do a better job, perhaps for less cost, or offer better value?”
•Alert children to the dangers of borrowing and paying interest
If you charge interest on small loans you make to them, they will learn quickly how expensive it is to rent someone else's money for a specified period of time.
•When using a credit card at a restaurant, take the opportunity to teach children about how credit cards work
Explain to children how to verify the charges, how to calculate the tip, and how to guard against credit card fraud.
•Be cautious about making credit cards available to young people, even when they are entering college
Some students report using the cards for cash advances and also to meet everyday needs, instead of for emergencies (as originally planned). Many of those same students find themselves having to cut back on classes to fit in part-time jobs just to pay for their credit card purchases.
•Establish a regular schedule for family discussions about finances
Other discussion topics should include the difference between cash, checks, and credit cards; wise spending habits; how to avoid the use of credit; and the advantages of saving and investment growth. With teenagers, it's also useful to discuss what's happening with the national and local economies, how to economize at home, and alternatives to spending money.
All of this information will be important as children take on more responsibility for their own financial well-being. Whether your child is old enough to hold a part-time job over the summer or not, these points are a great way educate your children about an important life skill and to keep them on their toes throughout their summer break.
Source: Brought to you by National PTA® by Paul Richard
Adapted from "Dollars and Sense," in the April 1999 issue of Our Children, the official magazine of the National PTA®.
Paul Richard is executive vice president of the National Center for Finance Education (NCFE), a nonprofit organization dedicated to helping people learn to manage money.
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