You could spend all your money on candy that will be gone before you can say “cavities” or you could buy one package of M&Ms to satisfy your sweet tooth and save the rest of your money for something with more longevity. Can you really expect a child to make the right choice? Some folks think it’s possible.
“We want kids to learn critical decision-making by applying cost-benefit analysis to all their decisions,” says Jim Charkins, executive director of the California Council on Economic Education, a nonprofit that targets public-school students with programs emphasizing how to make responsible financial life choices. “They need to learn this life skill when they’re young.”
By the time students reach high school, poor spending habits might have already taken root.
“Saving, investing, managing credit, debt planning, and budgeting need to start at an early age,” says Robert Duval, CEO and president of the New York-based National Council on Economic Education. “We don’t promote giving allowances. We think children should earn money equal to jobs done.”
Parents should consider setting up an investment account for their children by the time they reach the age of 10. Start with a minimum investment and have them track their stocks or mutual funds weekly. Check out Smith Barney’s program (www.smithbarney.com/yin/home.htm) for young investors. It both educates and entertains. Additional youth-friendly sites include Money Savvy Generation (www.msgen.com) and Jump$tart Coalition for Personal Finance Literacy (www.jump$tart.org). The Federal Reserve publishes a financial comic-book series (www.ny.frb.org/publications). Titles include The Story of Inflation, The Story of Monetary Policy, and The Story of Checks and Electronic Payments.
When children and grandchildren stand to inherit significant wealth, the responsibility to manage that future wealth weighs heavily. Longtime Coachella Valley philanthropists Tim and Edra Blixseth have four children, five grandchildren, and a high net worth.
“Our kids always saw Tim and me working together and building businesses,” Edra Blixseth says. “We made them pay half for things they wanted.” Their children are carrying on the tradition. “Two of our grandchildren opened up a lemonade stand recently,” Edra continues. “They were surprised when my daughter took the startup costs back from them. She explained they only got to keep the profits.”
Brian Amidei, vice president and wealth management adviser at Merrill Lynch in Indian Wells, offers this advice for preparing children and grandchildren to manage future wealth: “Most wealthy kids don’t know how much money their parents have. My experience is that a certain maturity level needs to be there before parents reveal exactly how much money their children will inherit. I tell clients, ‘Wait until your children hit 30 before revealing your net worth.’”
Continuing Education
While teaching young children the responsibilities of managing their money, also consider your own. Annual costs reach $50,000 at a number of universities — a hefty sum to shell out, especially when you may have two children attending college at the same time. That’s why Section 529 College Savings plans have become so popular.
All states now offer these qualified tuition programs, which are designed to encourage saving for higher education by allowing contributions to grow tax-free. The money investors take out later from the plans is free from federal taxes as long as it is used to pay for qualified higher education expenses, according to North American Securities Administrators Association, the oldest international organization devoted to investor protection. 529 College Savings Plans are sold as financial products through a variety of financial brokers, including major investment firms.
View these long-term investment vehicles with the same risk/return ratios as mutual funds, annuities, and stocks. It pays to educate yourself about the differences among the many plans offered to find the one that’s right for you, says Patricia D. Struck, Wisconsin securities administrator and past president of NASAA.