SAVVY PRESCRIPTIONS FROM DR. TIGHTWAD Senior Editor, Kiplinger’s Personal Finance Magazine JANET BODNAR What they need to know about money–and how to tell them Kids Sense Dollars & for Dollars & Sense for Kids Dollars & Sense for Kids What they need to know about money–and how to tell them JANET BODNAR Senior Editor, Kiplinger’s Personal Finance Magazine KIPLINGER BOOKS, Washington, D.C. Published by The Kiplinger Washington Editors, Inc. 1729 H Street, N.W. Washington, DC 20006 Kiplinger publishes books and videos on a wide variety of personal-finance and business- manage- ment subjects. Check our Web site (www.kiplinger.com) for a complete list of titles, additional infor- mation and excerpts. Or write: Cindy Greene Kiplinger Books & Tapes 1729 H Street, N.W. Washington, DC 20006 email: cgreene@kiplinger.com To order, call 800-280-7165; for information about volume discounts, call 202-887-6431. Library of Congress Cataloging-in-Publication Data Bodnar, Janet. 1949- Dollars & sense for kids: what they need to know about money and how to tell them/Janet Bodnar p. cm. Includes index. ISBN 0-93872-1-67-4 (paperback) 1. Children Finance, Personal. 2. Saving and investment. I. Title. II. Title: Dollars and sense for kids. HG179.B5669 1999 332.024 dc21 99-40649 CIP © 1999 by the Kiplinger Washington Editors, Inc. All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by an information storage and retrieval system, without the written permission of the Publisher, except where permitted by law. This publication is intended to provide guidance in regard to the subject matter covered. It is sold with the understanding that the author and publisher are not herein engaged in rendering legal, accounting, tax or other professional services. If such services are required, professional as- sistance should be sought. First edition. Printed in the United States of America. 9 8 7 6 5 4 3 2 1 Acknowledgments hen I first started writing about kids and money nearly 10 years ago, I knew a fair amount about money but I was still learning about kids. Since then my children have taught me a lot, and in this book they have pride of place. First and foremost then, I’d like to thank John, Claire and Peter, my long-suffering money-smart kids, for giving me the best financial advice and letting me share it with the world. I’d also like to thank: My husband John, for cooking me a spaghetti din- ner tonight; My parents, Renie and Ed Bodnar, for never hav- ing any doubts that this book would get done; My sister, Priscilla Jackman, for always getting me over the rough spots; The parents, students and teachers of St. Camillus School, especially Glen Mayers; All the family members, friends, co-workers, casual acquaintances and Dr. Tightwad correspondents whose anecdotes enliven these pages; David Harrison of Kiplinger Books, who always knows what to say and how to say it; Christy Pulfrey, Cindy Greene and Allison Leopold for keeping me honest in getting the facts straight and the words spelled right; Heather Waugh, Dan Kohan, Cynthia Currie and the other members of the Kiplinger art department for putting it all together so beautifully; And Jennifer Robinson. There never was a better editor or friend. W INTRODUCTION ix QUIZ: Test Your Money Smarts 1 CHAPTER 1: The Perils of Being Dr. Tightwad 7 CHAPTER 2: A Kid’s-Eye View of Money 17 CHAPTER 3: The Adman Cometh 25 CHAPTER 4: The Apple Doesn’t Fall Far from the Tree 39 CHAPTER 5: Small Change: The Preschool Years 61 CHAPTER 6: Surviving with ’Tweens 71 CHAPTER 7: Why Is Money Green? 91 CHAPTER 8: Allowances: A Hands-On Experience 103 CHAPTER 9: Penny Wise: Kids & Saving 131 CHAPTER 10: Your Kid, the Investment Guru 145 CHAPTER 11: Of Lawnmowing & Milkshake Stands 177 CHAPTER 12: Teens: The Early Years 201 Contents CHAPTER 13: To Work or Not to Work? 225 CHAPTER 14: Off to College & On Their Own (Sort of) 243 CHAPTER 15: Giving & Getting with Grace & Gratitude 255 CHAPTER 16: Girl Scout Cookies & Other Sticky Situations . . . 273 CHAPTER 17: Money-Smart Grandparents 287 CHAPTER 18: Dr. Tightwad’s Final Rx 299 INDEX 301 n all of history, no children have had more money of their own, more pressure to spend it, and less guidance in how to do it than the kids of America at the dawn of the 21st century. “Today, more than ever, children must learn about money, for it is both a source of confusion and an indispensable tool they must learn to use.” Those words made a lot of sense back in 1950, in a Kiplinger’s magazine article entitled “Will Your Child Know the Value of a Dollar?” And they're even more true today. Decades ago, it was a lot easier to raise children as responsible money managers. When young people worked for pay, they typically contributed most of their earnings to the family kitty, to help make ends meet. Consumer credit was not widely available, so people saved up for major purchases. Before TV, kids could covet only what they saw at their friends' homes or in a magazine. Today money is more abstract—plastic credit cards, electronic transfers, cash spewing from an ATM slot. Many teens work not to help support their family or save for college, but purely to fund their own discre- tionary purchases. Some develop an appetite for clothes, entertainment and consumer goods that they will have difficulty affording when, as young house- holders, they will have to pay for their own rent, food, car, insurance and other basics of life. The challenge for parents today is to teach re- straint and responsibility in a society that doesn’t put much value on those traits. This new book, Janet Bod- nar's Dollars & Sense for Kids, can be a big help. As the mother of three, Janet has lots of experience ix Introduction I in handling real-life money issues. Under the nom de plume of Dr. Tightwad, she began writing kids ‘n’ money advice in 1992, in the pages of Kiplinger’s Person- al Finance Magazine , of which she is senior editor. There followed a best-selling book, Money-Smart Kids (And Parents, Too!) , a newspaper column syndicated by The New York Times Syndicate, and countless appearances on national TV and radio programs. In a few short years, Janet has become the Dr. Spock of money-smart childrearing. Her new book offers astute, practical advice for parents of children ranging in age from preschool through college: Advice on allowances and family chores. Advice on teen employment. Ideas on how kids can get started as savvy savers and stock market in- vestors. Tips, too, on how parents and grandparents should make gifts to their young ones. In all of this good counsel, one theme keeps recur- ring: the importance of communication. Effective par- ents include the kids in discussions and solicit their ideas, even though the parents make the final decision. And they try to set a good example in their own money management, because children learn more from our deeds than our words. If all goes well, your kids will grow up with a healthy attitude toward money and the ability to man- age it. They will become fulfilled, competent and finan- cially secure young adults. And they won’t land back on your doorstep after you thought the nest was empty. K NIGHT A. K IPLINGER Editor, The Kiplinger Letters Editor in Chief, Kiplinger’s Personal Finance Magazine x DOLLARS & SENSE FOR KIDS arm up your parental reflexes with these 20 kids-and-money situa- tions—common experiences, at least in principle, for most parents. Once you’ve identified your level of parental agility and authority, read on; you’ll find plenty of my strategies and ideas for teaching your kids the value of a dollar. Remember, raising money- smart kids starts with you. 1. Your 7-year-old daughter loses the $5 she got for her birthday from her Aunt Mary. You: a. ask Aunt Mary to send another $5. b. tell your child she should have put the money in the bank. c. let her do chores to make up the $5. d. tell your child she should have been more careful. 2. Your 14-year-old son has been saving half of his al- lowance and money earned from neighborhood jobs. Now he wants to use the money to buy a $200 com- pact-disc player. You: a. allow him to buy it. b. offer him your old turntable instead. c. tell him there’s no way he can touch his savings. d. buy it for him as a birthday gift. 3. Your daughter has mowed your lawn since she was 12. Now 14, she wants to make money by mowing neighbors’ lawns. She also wants to be paid to do your lawn. You: 1 Quiz W Test Yo u r Money-Smarts [...]... are a recognized consumer force By age 31⁄2 kids are selecting the things Chapter Three The Adman Cometh 25 DOLLARS & SENSE FOR KIDS they want and watching their parents buy them (typically cereal, toys and snacks, in that order); by 51⁄2 the kids are making the purchases (toys, snacks and gifts for others) and the parents are watching By age 8 children make ZILLIONS FOR KIDS independent (unassisted)... child would get and what their financial responsibilities would be We had already decided 9 DOLLARS & SENSE FOR KIDS the kids were due for a raise But how big? As a starting point, we used average allowances as reported by the Nickelodeon/Yankelovich Youth Monitor survey At the time, the average for 14- and 15year-olds was roughly $9 per week, and we thought that made DEAR DR TIGHTWAD sense for John But.. .DOLLARS & SENSE FOR KIDS a say, “Okay, and go ahead and use our mower and gas.” b hire a neighbor’s kid to do your lawn c tell her to forget it because mowing your lawn is her job d say, “Use our mower and pay for the gas you use We’ll pay you half of what you charge neighbors.” $50 for your son’s sneakers Now he wants a pair of $200 inflatable high-tops You: 4 You usually pay a chip in the $50, and. .. athletes in general are paid more than teachers But they had a glimmer of understanding about why that is: “Entertainment,” said Andrea ON JOBS ON RELATIVES When the kids want something that 23 DOLLARS & SENSE FOR KIDS they can’t afford and their parents won’t spring for, they have no qualms about appealing to other family members Grandparents are considered a particularly soft touch “I’m into really baggy... before purchasing expensive gifts for the kids 12 Your daughter receives a $20 birthday check in the mail from her grandparents You: a let her spend it as she wants—it’s a gift b deposit the check in the bank for your daughter c tell your daughter to save $5 and let her spend the rest d call Grandma and tell her $20 doesn’t buy much nowadays 3 DOLLARS & SENSE FOR KIDS 13 You bought your 16-year-old... papers and collect fees d warn him that he’s likely to lose his job and income, and then allow him to do so 10 You’re standing in a toy store and your son is insisting that he needs a $60 video game You: a fork over the cash to avoid a scene b fork over the cash but tell him next time he’ll have to pay part of the bill c don’t fork over the cash, and otherwise proceed as in step b d proceed as in c, and. .. hardly bought myself anything I’d rather spend on her,” one parent told Forbes magazine in an article titled “Babies As Dolls,” about the booming market for infant clothing and equipment Said another parent, “My kids have tons of stuff, but if they want something I just don’t know how 15 DOLLARS & SENSE FOR KIDS to say no.” And these kids are barely old enough to ask a question Imagine the scene when they... example, by turning everyday 13 DOLLARS & SENSE FOR KIDS encounters with cash machines into mini lessons on money management You’ll also find guidance on how to help your kids cope with the economy at large by holding down a job or starting a business of their own You’ll hear from the people who study kids and money, as well as the real experts out there in the trenches—parents and kids themselves You’ll get... (they spend plenty) And for the record, I am not a tightwad Chapter One The Perils of Being Dr Tightwad 7 DOLLARS & SENSE FOR KIDS Actually, I tell people, all the advice I give has been used successfully by some parent—though not necessarily by me Writing about children and money has made me more conscious of the subject, but, like any family, we’ve had our successes and failures For example, once when... Enjoy your time together, and bon appetit down a list of expenses appropriate for kids their age: for example, movie tickets (and popcorn), rounds of miniature golf, after-school snacks, and extra caps and goggles during the swim season (they belong to a swim team) The older two would have to buy birthday gifts for their friends, as well as tickets to school football games and dances If they ran short . need to know about money and how to tell them Kids Sense Dollars & for Dollars & Sense for Kids Dollars & Sense for Kids What they need to know about money and how to tell them JANET. money and how to tell them/Janet Bodnar p. cm. Includes index. ISBN 0-93872-1-67-4 (paperback) 1. Children Finance, Personal. 2. Saving and investment. I. Title. II. Title: Dollars and sense for kids. HG179.B5669. Personal Finance Magazine x DOLLARS & SENSE FOR KIDS arm up your parental reflexes with these 20 kids -and- money situa- tions—common experiences, at least in principle, for most parents. Once you’ve