One on One with Janet Bodnar, author of "Raising Money-Smart Kids"
Thursday, November 23, 2006
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NBR has extended coverage of this Thanksgiving Day special, "Kids & Cash," available as a home video. Visit NBR's store for more information.
SUSIE GHARIB: Kids look to their parents and grandparents for answers and advice, but not all adults are money experts. So we asked an expert in the field of children's finances for some guidance on how to put kids on the path to understanding how money works and how it can work for them. Janet Bodnar is a deputy editor at "Kiplinger's Personal Finance" and author of "Raising Money-Smart Kids." I began by asking her what's the best age to start teaching your kids about money?
JANET BODNAR, DEPUTY EDITOR, KIPLINGER PERSONAL FINANCE: Well, I think, you know, you can start as soon as they start to ask you questions about money. You don't want to start too soon because you don't want to overload kids with information that they can't process. But, you know, at the age of five, maybe, they're going to start asking financial questions and a financial question might be something like, you know, "why don't you go get some money out of the bank machine, the cash machine" which just freaks parents out because they think that their kids think that it's just going to pop out of the machine which, of course, it doesn't. It's a great time to explain to your kids the bank is like a big piggy bank for mom and dad, and that's where the money comes from. And sometimes just like the kids' piggy bank, mom and dads' piggy bank can be empty.
GHARIB: Janet, what do you think is the most common mistake that parents make when they are trying to teach their children about money, no matter what age it is?
BODNAR: Well first of all, it's just, they don't talk to their kids about money. They continue to keep it a hush-hush subject. They can talk about sex. They can talk about drugs, but money is something that's still taboo and so they don't answer their kids' questions when the questions arise or they give the kids a real abrupt answer that doesn't teach the kids anything. Another mistake I think parents make is they think they don't have any influence with their kids. They think that their kids' peers will have influence or the media will have influence, but they don't think that when they tell or teach their kids something, that the kids will listen. And the kids do listen.
GHARIB: What about allowances? Do you think they're a good idea?
BODNAR: I think allowances are a great idea because as I often say, kids will spend unlimited amounts of money as long as it's yours. When their money is on the line, it's a whole new ball game. And for kids who aren't yet old enough to have a real paying job, the way to get money into their hands that they can manage is with an allowance. An allowance the way I define it is the fixed amount of money that kids get at regular intervals -- and this is critical-- in return for taking on certain financial responsibilities. It's not just extra money you give them on top of everything else, but it's something that you give them in return for responsibilities that you've had. So you're giving them a job to do with their money.
GHARIB: I know that this is a controversial issue because if you do decide to do allowances, then the debate is at what age and how much?
BODNAR: My rule for allowance is a base allowance, a weekly allowance that's equal to half a child's age. I think parents seem to feel more comfortable with that number than they do with a weekly allowance that's equal to the child's age. Plus the parents don't want to give their six- year-old $6 a week for example. But $3 a week sounds more reasonable and then you can always adjust that up or down depending on where you live and what you expect your kids to do with the money.
GHARIB: Should savings be a component of the allowance and also what about charity?
BODNAR: Well, it kind of depends. A lot of kids are hoarders. They save money on their own. You actually have to get them to spend their money. So it sort of depends on what your kid's personality is. If they save on their own, then you don't really have to do it or make it part of the allowance. But if they don't save on their own or if this is a value, a financial value that you want to teach your kids, you could easily expect them to give, say... save, say, 10 percent of their allowance or put aside 10 percent of their allowance for charity. I think those are good rules to have if those are values that you want to pass along to your kids.
GHARIB: Any final thoughts on the best advice that you can give parents about teaching their children about money?
BODNAR: Well, I think, again, to have confidence, not to worry. Again, people think that -- parents think, oh, my gosh, I'm not such a good money manager myself. What will I tell my kids? Or they're going to ask me some complicated question. What will I tell them? No, kids really are total clean slates when it comes to money. They learn most of what they know about money from their parents. That's what they tell us, but even the smallest lesson that you can give to them is really very important. So anything that you can do, any kind of financial wisdom that you can pass along to your kids is really going to be helpful to them in the future. So don't worry about it. And if you really feel that you don't know a lot about money, get yourself educated and then you can pass it along to your kids.
GHARIB: That's a good idea. Janet, thank you very much and happy Thanksgiving to you.
BODNAR: My pleasure, and happy Thanksgiving to you, Susie.
