Money is not a noun; it’s a verb
We all want our kids to learn this one vital life skill: Save more than you spend. Still, it’s a tough lesson to teach kids in an age of instant gratification; pay for a song on-line and it’s instantly available on your i-pod. Worse, money is no longer “real” to kids. Lunches are paid for electronically; the money is invisible; it took my son three years to understand that the pizza and milk he bought on Thursdays was not “free.” Phone cards, debit cards, gift cards — it’s all “invisible” free money.
We can pass out the allowance, lecture, explain and talk all we want to our kids about delayed gratification, but when they smell that delicious scent of popcorn at the festival — they’re not going to understand a single word you’ve said. They want a $1 for popcorn — now.
A new game for the Wii is not only the fun the game brings; but could also be seen as $50 in a savings account, earning compounded interest. It won’t take kids long to begin to feel how this complex investment system in our country works, if they’re exposed to the system early and frequently.
Our bank is offering 7 month certificate of deposits that earn 4% interest. Our boys savings accounts are currently earning a mere 1%. I explained how much money each would have on April 13, 2009 if they stayed with their current 1% rate. Then, I showed them what would happen on April 13, 2009 if they combined their money and bought a CD with their savings. There’s a catch, I warned. “The money would be “locked-up” for 7 months. Even through Christmas.”
They were quiet, and soon the older boys said they wanted to do it, and the little ones shouted, “Yeah, let’s do it!” They also went around the house and collected coins and pennies from the sofa cushions and threw that into their CD too, while the older boys calculated the yield of interest on the extra $3.78 they found in the sofa.
So, with their savings accounts wiped down to a mere $5, I said, “Now think about that empty savings account. Try to see if there’s a way you can build that money back up in there before April 13, 2009. Sometimes, all you have to do is give it some thought, and an idea might show up out of the blue. If you do, then we can extend that CD another 7 months and earn even more interest.”
Compound interest, I explained, also works in reverse; like when you buy something you really want, and you don’t have the money for it, the bank will “give” you the money; but you have to pay for it. Much more than 4%.
The trip to the bank; waiting for the teller to sort out the funds, compound interest, and the act of collecting and counting the pennies. Today, the kids made some tough decisions about their life savings, and the watched how their money can be used as an investment tool. Today, money was a verb: an action word — not just a means to get to the latest “must-haves.”
If you’re looking for monthly budget sheets for your kids, or a way to explain interest and savings rates, visit Moneywi$e eLearning an on-line interactive tool created by Capital One and the national consumer advocacy group, Consumer Action. For more tips, see how other parents teach their kids about money, from the Parent Bloggers Network.
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Wow, what a great lesson. Something most parents don’t do!
I have seen my kids get frustrated so many times, when they want to “help pay”, meaning hand over money and get the change, only for me to have to use a debit card. It’s so unreal.