?About Money

Schools teach children some financial lessons, but if you want your kids to pick up good money skills and become financially responsible adults, you should give them some training yourself.

Consider the following suggestions:

Set a good example. Children frequently do as you do, not as you say. Keep your own financial affairs in order, and your children will likely emulate your good habits.

Talk about it. Three or four years is old enough for money lessons. Start with the names of coins and bills; then go on to how much each is worth. Let your child pay for things at the store.

Give an allowance. An allowance teaches your child an important lesson for living in this country; work means money. A steady allowance for steady work is best. Extra pay is okay for extra work. Decrease the frequency (but increase the amount) for older children. Less frequent payment force your child to budget.

Allow mistakes. At its most basic level, money is about making choices. Children who never feel the pain of their poor financial choices are likely to learn how to avoid making them again. The cost of mistakes only goes up over time. If Junior wants to spend his whole wad on a Nintendo game, let him. It will be a while before he can afford another big purchase. That's a good lesson in deferring gratification.

Encourage saving. Piggy banks are good for young children, but graduate them to a savings account as soon as their maturity allows. About the time they understand interest payments, they usually have enough money to meet the minimum deposit of a better-earning money market account.

Teach money management. Specific lessons might range from how to compare interest rates on savings accounts, to the pros and cons of mutual fund investing. But there should be one common element to all of your teaching in this area; money doesn't take care of itself.

?About Investing

The art of saving money and investing it wisely isn't child's play - plenty of adults don't do either one. That, paradoxically, is why you need to introduce these subjects to your children early on. They may not become tycoons, but they will become self-sufficient and develop realistic attitudes about money.

When your children open their first savings account show them "the miracle of compounding."

Introduce mutual funds later on. Mutual funds complement a savings account and help kids become comfortable with other financial facts of life; risk, return, and the importance of saving money consistently.

Several funds are specifically geared for children, requiring minimal initial investments. If a mutual fund seems too abstract, consider individual stocks with specific "kid appeal," like McDonald's or Nike. Review brokerage statements with your kids instead of just filing them away.

?About IRAs

The last thing on the minds of young people is retirement. Yet saving for retirement should always start as early as possible in order to reap the benefits of compounding interest.

If your child has earned income, he or she is eligible to contribute up to $2,000 each year to an individual retirement account (IRA). Earned income is wages or self-employment earnings (e.g., delivering papers, modeling, or babysitting).

Watch the investment grow. If an 18-year old investments $2,000 annually in an IRA through age 25, with an annual return averaging 10%, by age 65 his or IRA will exceed $1 million. Not a bad return for a $16,000 investment! If your child waiting until age 25 to start contributing to an IRA, he or she would need to invest $2,000 a year until retirement to have $1 million.

Review the available options. Establishing an IRA has become more complicated with the increase in IRA options from which to choose. Some IRA contributions are tax-deductible; others are not. While earnings in all IRAs accumulate tax-free, the taxation of distributions from IRAs differs depending on the type of IRA options can maximize the usefulness of these accounts for a child's particular circumstances.

?About Family Finances

Many people feel uncomfortable discussing family finances with their children. However, sharing some information with your grown children can make things more comfortable for everyone.

Discuss your financial goals with your adult children, and let them know your plans for your retirement years. It's often a good idea to involve adult children in some or all aspects of your estate planning. Your particular family situation should dictate how much information you share and with whom.

If you would like assistance with your financial planning or teaching finances to your children, please call. We're here to help.