2004 Fall/Winter Volume No. 4

Teaching Our Family to Manage Money

John Camphouse, CFO
PolyJohn Enterprises

Managing money is one of the most important skills anyone ever learns,
and yet, it is not taught in schools.

A recent U.S. survey on money management basics was given to more than 4,000 high school seniors nationwide. It found that nearly 70 percent failed the test! In fact, the average score of 36.6 percent was well below failing.

• Have you taught your children how to manage money?
• Do they understand how credit works?
• Are they prepared to create a budget?

If you answered any of these questions “no” or “I don’t know,” it’s time you took your children aside and gave them a few lessons; if we don’t teach our children about money, they’ll learn the hard way. Isn’t that how most of us learned money management? For those of us who did learn it the hard way, it was a learn-by-doing process—only learning came from making costly mistakes.
Here are some of the most
common mistakes:
1. Don’t let you children learn about the dangers of credit—only after reaching their credit limit and realizing they can’t keep up with the interest payments.

2. Don’t let them learn about the importance of balancing a check-book—only after paying costly fees for bouncing checks.

3. Don’t let them learn about the pain of extended credit terms —only after realizing that there are still two years worth of payment slips to go on a car that is already four years old and desperately in need of new tires and other repairs.

4. Don’t let your children learn the hard way that not having good credit will keep them from being able to afford a decent home for their family.

It’s ironic that we spend so much time, energy and dollars making sure our children become good students, good athletes, and good workers, yet fail to teach them what they need to know about everyday life—how to manage money wisely and be a smart consumer.

Importance of Good Credit
Credit problems are becoming a national crisis for our country. The number of bankruptcy filings is greater than anytime in our history since the Great Depression—the fastest growing group declaring bankruptcy in America today is young adults ages 20 to 24.

Because of this, a credit report is fast becoming as important as a resume. In fact, many employers and landlords routinely check applicants' credit ratings as part of the review process. A few late payments on a credit card could cost a young person the ability to rent an apartment, get a job or buy a car.

It is Never Too Late to Start
No matter what age your children are, there are some important lessons you can teach them about money. If they’re about to get married, ask if they know how to prepare a family budget, do they understand how to secure a home mortgage, or do they understand an amortization schedule. If they’re about to go to college, make sure they know how to balance a checkbook, manage a credit card or phone card, and be sure they understand how student loans will affect their lives far into the future after college. If they’re entering high school, teach them how to save for college, manage a car payment, or budget for a prom.

Tips for Young Children
If you have younger children, here are some important lessons to go over with them:

• Create an allowance system that encourages children to set goals and meet expectations. Make deductions to the weekly allowance when they fail to accomplish assigned tasks and offer extra money when they do extra tasks. Encourage them to think of extra work on their own if they want to earn more.
• Help your child learn to save for special toys. You’ll teach them important lessons by helping them earn it, rather than simply buying it for them. When children save and spend their own money, they learn about setting priorities, determining value, being patient, and delaying gratification—all fundamental life lessons.
• Encourage your child to give something to a charity they understand, such as a children’s hospital, or a shelter for families with children.
• Explain that money is also for sharing. Encourage children to save for birthday and Christmas presents for their close friends and relatives.
• Include children when discussing family finances. When talking about things
that will affect them such as vacations, new cars, new homes, etc., explain what it
will cost and what you as parents will have to do to budget and save in order to afford these big-ticket purchases.
• Open a bank account for your child and encourage them to save 10% of their allowance each month. Use the bank account to teach them about compounding interest and how money grows.

Tips for Older Children
If you have older children, here are some important lessons to go over with them before they become independent:
• Help your child open a checking account and teach them to balance the account religiously.
• Make sure they understand that using a debit card is the same as writing a check—each withdrawal must be accounted for.
• Warn them about Cash Stationtm fees and how quickly they add up. A $2.00
fee is a 10% penalty for anyone taking the $20 quick cash option!
• Define the meaning of such essential terms as finance charges, grace periods, credit limits, credit reports, amortized payments and minimum payments.
• Advise your children to keep their credit limits low, $500 or under, so that they can pay it off each month and build their credit rating without falling behind. (Keep it low enough that you can afford to bail them out if they mismanage it. Be sure to enforce penalties if you do have to help.)
• Be sure they understand that if the credit card is in their name, any mistakes such as late payments or overcharging can make it difficult to get the basics of life—a car, a home, and a job.
• If you give a child a credit card in your name, establish firm guidelines for its use. Make sure they use it only for emer-gencies, not for taking friends to the movies, buying the latest CDs, or worse—body piercing and a tattoo. Be sure the bank can notify you immediately if the credit limit is reached. Don’t make the mistake of letting their mistakes damage your credit rating.

Finally, remember that despite all the effort you make to teach your children about money, they will make some mistakes. The most important thing you can do to keep the mistakes small is to keep their credit limits low while they develop money-management skills. Their future financial security is at stake. By starting early, you can help your child develop good financial habits that will last a lifetime.

Help is available online
for teaching money management

If you don’t know where to start teaching, help is only a click away. Some of the better money-management sites give your kids hours of interactive fun while they learn to manage money. Go to these sites and work through the quizzes, exercises and adventures together. Then, help them practice what they learn in real life.


VISA the credit card giant offers one of the best money management sites on the web with interactive learning sections for consumers, parents, teachers and children. The children’s section is broken down into sections for youngsters, teens, and college-aged students. It has earned the National Education Association's seal of approval.


Sense and Dollars is a great site for preteens and teens. Produced by Maryland Public Television with the help of the U.S. Department of Education, Sense & Dollars teaches
the fundamentals: "Earn" "Spend" and "Save". Interactive games test your children’s skills in handling virtual money in unique “real-world” situations.

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