A Suze Orman exclusive

Let’s talk about how you can raise confident and happy children who possess a healthy approach to money.

1. ATM ABCs…
If you could get inside the heads of toddlers or young children today, their original understanding of money might be as the prize in a kind of game involving ATMs. Whenever you find a machine, you put your magic card in the slot, punch in a few numbers and voila! money pops out. Cool!

Quite innocently, parents are totally messing with their kids by exposing them to this “game” without providing any context. It seems to me that when a child reaches four or five years old you have to start explaining how the game really works. A full-blown lesson on the American banking system isn’t necessary, just a few brief, clear messages explaining why you’re able to make ATMs “give” you money on command. Likewise, the next time your child asks why you have to go to work, I want you to respond along these lines: “I am fortunate because I get to go do interesting work and earn money, so we will be able to buy things that we need.” That answer not only begins to introduce the idea that money is earned, not a part of a game, but it also puts money in a positive light. It drives me crazy when I hear parents tell their kids: “I hate having to go to work instead of staying home with you, but I have to go make money.” With that answer you have managed to teach your kids to hate work and to hate money. Not what you really intended, right?

2. Shop Talk
A great many of you need to instill some mall discipline in your kids. The key to this is to set parameters for each trip, organized around a pre-determined reason or objective for the excursion. Taking children to the mall without this kind of planned focus is a ticket for disastrous impulse buying. And just think what message that sends to your child. Whenever they want something all they have to do is go to the mall and Mom or Dad will whip out the credit card. How do you expect your child to ever learn the value of money when you spend it like that?

One of the best ways to teach moderation and the difference between wanting and needing is to sit down with your child before you go clothes shopping for the new school year. Before you ever set foot in the mall, have a clear game plan: we are looking for three sweaters, four shirts, and four pairs of pants. Period. And if your kid has a few favorite stores, I suggest you insist they case each store before any purchase is made. That way, you’ll avoid buying everything you need at the first store and then having your kid walk into the next store and claim they will “just die” if they can’t also have this or that item. The idea is for them to take a look at everything that’s available and then make choices based on the parameters you’ve set with them.

In today’s brave new world, of course, you also need to come up with an online shopping strategy. Because of the incredible convenience, I see way too many parents buying for their kids via their PC or Mac without thinking. You’re sitting at dinner and your son mentions a new video game he wants. Then an hour later, when you are at your computer finishing up on some work, he appears at your elbow and suggests you just buy it online. So you do.

Take a look at your credit card statement and add up how many purchases are those “easy” online transactions made simply because your child asked at an opportune moment. Scary, huh? It’s time to set some limits. As I explain below, gifts are to be reserved for truly special occasions. Anything beyond those special occasions needs to be financed by your child. Part-time jobs (for teens) are crucial money management lessons for kids.

3. Bill of Rights
In addition to setting the right spending examples with your kids, you also need to teach them the mechanics of managing money. Let them begin to learn by “helping out” when you pay your bills. When a child is a pre-teen or young teen, let him or her even write out a few bill checks for you to sign (or handle the clicks on your online bill-pay). Again, there doesn’t need to be a lecture here, nor is your goal to make your child feel the weight of all your financial responsibilities. But it’s a good first step in showing them what it takes to live. Trust me, a child who receives $5 or $10 for allowance is going to get quite an eye-opener when they see that the gas & electric bill was $300 during the winter months, that the cable is another $40 or so every month, and that your cell phone (one of life’s most basic necessities in their worldview) costs $50 a month.

Speaking of cell phones, when you decide to give your child one, don’t pass up the opportunity for a great financial lesson. Even if you are simply adding a child to an existing plan, let them know what their “share” of the bill is. I would recommend that you increase their chores and responsibilities around the house to offset the cost of their phone. Again, you are not denying them; you are taking advantage of a natural way to teach them that nothing is free. And any excess minutes they run up need to come out of their own allowance, or be worked off with extra jobs around the house.