Teach Your Grandchildren the Value of Money

Image via Wikipedia

Some of my most enduring childhood memories involve my mother taking me to the Bank of Lincolnwood in Illinois. Even now, I can picture her giving the teller my father’s paycheck and getting cash back — cash that she’d then use to purchase our family’s groceries and other necessities. I also recall watching my parents pay bills together every month. Even as a young girl, I understood that my father went off to work every day to earn money for our household.

Chances are good that you, too, brought your children along with you to deposit paychecks at the bank and make cash withdrawals. Maybe they also watched you balance the family checkbook and pay monthly bills. Perhaps they noticed as you put a coveted item on layaway at a store, or heard you talk about saving up to pay for a coveted item. They probably paid attention, too, as you counted out cash to buy gas and groceries.

But in this age of ATMs, credit cards, and direct deposit, your grandchild could be forgiven for not having a clue about cold, hard cash — where it comes from, and what it’s used for. In today’s online-banking society, there are simply fewer tangible, visual connections between kids and cash — and therefore fewer opportunities to teach them about money.

As a grandparent, you can play an active role in helping your grandchild make those connections. Here are a few ways to start:

Talk About Money

With your child’s blessing, of course, you can help your grandchild learn about money simply by discussing it. Talk about how Mommy and Daddy go to work each day to earn money for the family, or explain how you saved part of your paycheck when you worked in order to have money to live on in retirement. Keep the message age-appropriate, but help your grandchild understand that money is something you earn and use to live on.

Start a Habit of Saving

Even young kids can get into the habit of saving, and watching their nickels and dimes (or, when they’re older, dollars) add up. This can give any child a sense of accomplishment and satisfaction. Give young grandchildren a piggy bank as a gift and a little change to get them started, or help older kids start a money-market savings account at a bank. Search online with them to find the bank that offers the best interest rate — and explain to them what that means.

Take Financial Field Trips

The next time you need to deposit a check or get cash, skip the ATM and bring your grandchild with you to visit the teller. She might be amazed to discover that most banks are actual brick-and-mortar structures! This gives you an opportunity to teach your grandchild that you have to put money into your account in order to get money out. Of course, that lesson can apply at the ATM, too. Make sure your grandchildren understand that the nice little machine doesn’t simply spit out limitless numbers of $20 bills.

Or consider visiting these educational destinations as financial field trips. In New York City you can witness the bustle of Wall Street and visit the Museum of American Finance; in Philadelphia or Denver, you can take free tours of the United States Mint and watch coins being produced.

Give Money-Smart Gifts

You might already be giving your grandchildren gifts of money, but you can also give them the gift of a financial education. Consider getting young grandchildren a book about money. Search Amazon.com books under “children’s books, money” for a list of available titles, including Nancy Loewen’s Save, Spend, or Donate? A Book about Managing Money (Picture Window Books, 2005) or Diane Mayr’s The Everything Kids’ Money Book: From Saving to Spending to Investing – Learn All About Money! (Adams Media Corporation, 2002).

If your grandchildren are older, consider giving them a consultation with a financial planner. I have clients who bring their young kids in and we briefly discuss stocks, bonds, and mutual funds.

Use Cash

If you do get money from the bank or an ATM with your grandchildren in tow, make sure they see you use it — at the McDonald’s drive-thru, toy store, or gas station. Show your grandchild how much cash you had, how much what you’re buying costs, and the change with which you’re left after purchasing the item.

Kids need to know the value of money, how it’s earned, and what it’s used for. By exposing them to actual currency you can help impart these lessons. So go ahead, show your grandchildren the money: You can give them a lasting gift without actually spending a dime.

Bambi Holzer, contributor at grandparents.com

Related articles

• Teens, Tweens and Finances (blogher.com)

Financial Advice For Your Grandchildren

Financial advice is simple on the surface. Save your pennies. Don’t buy without shopping around.  Do your homework. Don’t spend more than you earn.

The details surrounding the financial basics, though, are always changing, and therefore require some knowledge and training to navigate.

I have spent some time examining how financial experts advise their own grandchildren, and the secrets necessary to teach your “accounting students” are actually quite simple.

Start Them Early

Good financial habits are so important, you should take action to instill in them your grandchildren as early as possible. Spontaneous lessons as opportunity arrives are just as important as deliberate money-management planning strategies such as maintaining a budget and having a savings.

Help Them Choose Wisely

Laying a foundation of money management skills can start with simple lessons.

Two year old Jax wants everything when I walk into a store with him. Setting limits and expectations early is an important lesson, so sometimes I will say no, and talk about the importance of staying within our family budget. Or I will force him to choose one item under a certain dollar amount using a brief explanation about staying within our means or not dipping into savings for things we want.

Discussions on wants versus needs can occur everywhere: the grocery store, the mall, even at the playground, when you grandchild says she “needs” and extra five minutes of playtime.  

Conversations on the value of their time (using the “time is money” statement), and how much of it to dedicate to one activity over another can occur anywhere around the house.

Teach them to Save & Spend Smart

Your grandchildren can’t save much if they aren’t spending their money shrewdly. Helping them plan specific financial goals, knowing what amount of money is required to fund them can start at any age.

Joe Kovac, a former CFO and founder of JTK Consulting, suggests starting off with a modest allowance: “Have your grandchildren accept responsibility for some of their own expenses, even at five years old they can learn to spend carefully. Instead of buying them a treat at the grocery store, have them purchase it.  This teaches them how far a dollar really goes, and helps them learn to make choices.”  If you cringe at not spoiling your grandchildren, you can provide the allowance – and the lesson. In addition, he advocates having children save fifty percent of their allowance a week, starting immediately.

“I use a 50%, 30%, 20% model.  My grandchildren can immediately spend 50% of their allowance on anything they want, place 30% into what we call ‘short term savings’ for bigger items they want, like a toy or a doll that may take three or four weeks to save for, and 20% into what we call ‘long term savings’.  Long term savings are for special occasions, like free spending on a summer vacation.  I use the words ‘long term’ relatively, three months is an absolute eternity for a five year old, but a year is reasonable if your grandchild is ten”.

Set the Example

The most influential financial advisor isn’t the one your grandchildren will hire — it’s you, according to John Brown, the author of How to Run Your Business So You Can Leave it in Style (Amacom Books, 1993) and founder of the Golden, Colorado-based Business Enterprise Institute, an organization that helps business owners sell their companies or leave them to the next generation.

His advice, regardless of what your child does for their career:  “You have to be consistent. If you’re telling them not to spend a lot, but you do the opposite, it’s not very effective.”

 

Steer them Away From Unnecessary Risk

It is hard not to become attracted to credit cards. They are so readily available and allow them to attain more now and pay later, so it’s easy to understand why your grandchildren may be pulled into purchasing more than they can really afford.

Teach your grandchildren about the importance of living within their means and finding creative inexpensive solutions to satisfy their needs.

Investing Wisely

Some debt is good. It is possible to intelligently balance borrowing with investment returns. For example, rather than prepaying a tax-deductible 6 percent mortgage, the extra cash could be used to contribute to a retirement plan that could earn a tax-deferred 8 percent average rate of return.

You can teach your grandchildren to write out a financial plan, including their goals, starting at a very young age, and have them practice thinking through all of their options before making financial decisions.

You can’t stress enough to your grandchildren to start investing as early as possible. Those who start saving at age 25 have, on average, 40 percent more money when they retire than someone who begins at age 35, because the money has more time to grow.

Related articles

• 5 Unconventional Ways to Squeeze Extra Cash Out of Your Budget (dailyfinance.com)
• Raising Grandchildren (grandmacents.com)