Create a 401-Kid Plan

Our 4-part plan for teaching financial planning to your children.

In the past five years, youth spending has ballooned to nearly $200 billion per year.

Teens and even younger children carry cell phones. They eat out with their friends at the mall and at fast-food places. They buy the latest gadgets: iPods, digital cameras, and computers. As a result, marketers have zeroed in on "tweens," kids roughly 8 through 12, who have graduated from buying just bubblegum and Twinkies to purchasing music downloads, video games, and even designer wardrobes. We grownups usually pride ourselves on our sensible spending habits. By its very nature, though, much of youth spending is frivolous. And to be blunt, excessive spending is first learned at home. All hardworking parents just want to give their children the very best, but without the lessons of fiscal responsibility, children learn how to spend, spend, spend. Start teaching financial planning right from the start. Here's how our 401-Kid Plan works.

1. Give your child an allowance. How much you choose to give is up to you as long as you can afford it, and it doesn't make your child feel like Paris Hilton! Many parents tie the amount of allowance to chores, which is a great way for children to get an understanding of work and the value of their time.



2. Tax the allowance. First, hand your child the allowance in its entirety so he can appreciate the full amount, then ask for 5 percent back. It won't make much of a dent in the sum, but it will teach your child about overhead. Instead of paying for education and sidewalks the way adults do, children can see their taxes go toward household expenses. Snacks, mortgages, and flute lessons aren't free!



3. Donate 5 percent of your child's allowance to a charity of her choice. Introduce your kid to great children's organizations such as UNICEF and St. Jude's Children's Research Hospital and mail off 5 percent of the allowance each month. Or visit a local shelter or nonprofit group and let your child donate in person. Teaching children the value their dollars have to others gives them a reward that will stay with them through life.



4. Finally, have your child put 10 percent of each allowance into a savings account -- her own 401-Kid. Your child will learn about saving for the future and may decide on a goal to work toward. You may even be inspired to match the funds. Before sending children off into the world, where offers for credit cards and quickie loans lurk around every corner, teach your children the value of a buck. They just might learn a little responsibility and smart decision making, too.

From For America

 

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