Money generates plenty of interest

THE BALTIMORE SUN

In a Nov. 21 article in the People section, Key Federal Savings Bank should have been cited as the sole sponsor of a financial program held at an Owings Mills school.

The Sun regrets the error.

The financial seminar began with this question: "How many of you are interested in money?"

The answer from the 10-year-olds at Owings Mills Elementary School: All hands shot into the air. When the talk is about greenbacks, youngsters sit up and take notice.

"Money is a big empowerment for kids. They are incredibly fascinated by money," says Neale S. Godfrey, a former bank vice president and author of "The Kids' Money Book" (Checkerboard Press, 1991) and "Money Doesn't Grow on Trees: A Parents' Guide to Raising Financially Responsible Children" (Simon and Schuster, 1993).

"But sometimes parents are uncomfortable talking about money, and the schools don't have time to go much in depth about it," says Ms. Godfrey, who recently sponsored the seminar along with Key Federal Bank representative Jill Brader.

Young children should learn money management, says Ms. Godfrey. And it doesn't matter that kids have no bills to pay or household to manage, she says; someday they will.

Judging from a recent multiple-choice test taken by 2,010 full-time college juniors and seniors, young people's knowledge about finance is somewhat lacking.

Students taking the test, which was administered by the Consumer Federation of America, had an average score of 51 percent correct answers. Only 33 percent of the students knew banks set credit card interest rates. Only 22 percent understood the annual percentage rate is the best way to figure the cost of a loan.

There is an "abysmal financial illiteracy that afflicts most Americans," Ms. Godfrey says. "If children learn to understand money when they are young, they will grow up to be financially responsible and solvent adults," she believes.

Owings Mills fifth-grade teacher Joe Lipo, whose class attended the workshop, agrees. "The earlier they understand the concept of money, the better off they will be in making the right decisions later on," he says.

At what age should parents begin talking to children about money?

When parents feel their children are old enough "to understand the concept of money," says local financial consultant Marianne Kuta, whose specialty is family issues.

"That could be around ages 7 or 8. Maybe around the age of 5 parents could begin talking a little bit about money," says Ms. Kuta, the mother of a 2-year-old. Ms. Kuta also is a co-host with her husband, Gilbert, for a radio talk show on finances.

Ms. Godfrey began talking about money with her children at an even earlier age.

"I started teaching my children at around age 3," the author says. "I approached it as one of the life skills they must learn, just as they must learn how to brush their teeth."

Ms. Godfrey suggests teaching children early to allocate their funds three ways: long-term savings (such as for college tuition), savings for larger purchases, and a small amount for something they want right now.

Buying stock

Another way to teach about money is to buy a share of stock in your child's name, Ms. Kuta says.

"We have parents who give their 10- or 11-year-old kids a stock in something like Toys-R-Us, then teach them how to follow it," Ms. Kuta says. "It really is a good way to get them interested in finances."

Not all kids have stocks to manage, but plenty of children have their own money -- an allowance -- to handle.

Most of the two dozen children at the workshop said they get a weekly allowance. The amount varied, but $15 or $20 was most common.

"I get $15 a week," says Melissa Kronk, 10, who says she saves most of her money.

Shawn Wilkerson also gets "around $15 a week" and has to do chores to earn his allowance. "Clean bathrooms, wash dishes, clean my room," he says.

Matt Joiner says he gets $3 a week. "I got to take out the trash, I got to make the bed. I got to clean out the bathroom," he says.

Ms. Godfrey feels that a good rule is to "pay kids their ages" in a weekly allowance. Parents should remember that inflation has weakened the dollar since they were children. Depending on their age, "giving kids 50 cents a week, for example, is not enough," she says.

But parents are in the best position to know their children's spending habits and what amount works for them.

Denise DeForge's 6-year-old son, Gregory, does just fine with $1 a week. Her 10-year-old daughter, Jaclyn, receives $2.50.

"They have enough to save some and enough to spend," Mrs. DeForge says.

Her children's allowance is not tied into household chores, she says. The same was also true for about half the students at the workshop.

And that's a good thing, says Ms. Kuta, who believes doing chores should not be tied to allowance. "Children should learn there are things they must do around the house anyway, not for an exchange of money."

Mary Hunt, financial lecturer, author of the Cheapskate Monthly newsletter and mother of two sons, agrees.

"Look at it this way -- sometimes you get a lot done on your job and sometimes you don't," says Ms. Hunt in a telephone conversation from her home in Garden Grove, Calif. "But your paycheck doesn't go down because you blew it one day."

Ms. Godfrey disagrees. She says giving children money without benefit of "earning" it is not wise. "I advise parents that it's a good idea for children to learn they have to work for their money."

Ms. Hunt has yet another approach: "We always called allowance a salary." The children had chores to do. And if they failed to do them, they were issued a citation -- like a parking ticket -- and they would be fined.

"It's not that we docked their salary if they failed to do something; rather, they paid a fine. The fine wasn't always tied to money, but we did find that money is what caught their attention," says Ms. Hunt, who stipulated her sons save 10 percent of their "salaries" and give away 10 percent.

In some households, money is used not only as payment for services rendered but also as an encouragement or reward.

"At the end of the year, I get $100 from each of my parents if I get straight A's," says Constance Roberts, 10, a seminar attendee.

The take for Shawn Wilkerson is a little less. "For each good report card, I get around $5 extra," he says. For Melissa Kronk, the price for good grades is "about $30." Matt Joiner pockets around $20 for good report cards.

Though hardly new, the practice of paying for good grades remains a controversial one.

"When I was a child, my parents stressed that it was important to do your best, although I wasn't paid for good grades. Many of my friends were, though," Mrs. Kuta says.

Consider repercussions

The financial consultant suggests parents should consider the repercussions of paying for good grades before deciding if it's right for their child.

"If parents know their child is capable of A's but is getting D's, that's one thing. But what if a child is really doing the best they can do -- but gets C's instead of A's and B's?

"It wouldn't be right not to reward them, because sometimes their best isn't an A. I know plenty of intelligent kids who are getting C's. Not to reward them when they are trying their best would not be good for their self-esteem."

Yet, Ms. Hunt says it can be a practical way of initiating children into the real world, where money is often tied to performance.

"We are living in the real world," she says. "Paying kids for getting good grades is not a bribe."

"I don't think it's a good idea," Ms. Godfrey says. "Good grades are their responsibility. Take children out for a special treat or something for getting good grades. Don't pay them for it."

Other parents also are divided on the issue of paying for good grades.

"I don't think it's right," says Margaret Cook, the mother of 9-year-old Melissa Green.

Mrs. Cook gives her daughter a treat as a reward for good grades, but not money. In addition, the fourth-grader at St. Dominic school in Northeast Baltimore receives about $5 a week allowance.

But Cindy and Larry Eifert, parents of 14-year-old twins Stephanie and Jessica, began paying their children for good grades when they were in middle school.

Incentive, not pressure

"They do not get an allowance. They get $10 for every A and $5 for every B. Nothing for a C. And if they get on the honor roll, that's an extra $50. We don't pressure them, but this is an incentive," Mrs. Eifert says.

Mrs. Eifert has noticed the twins, mostly straight-A students who attend Loch Raven High School, worry about getting less money if they think they will get "only" a B.

"That's the only bad part," Mrs. Eifert says.

In the end, parents should consider the overall message conveyed to their offspring about money, the financial consultants say.

Right now, Mrs. Kuta's son is only 2, but she has a plan for educating him about money when the time is right.

"I will teach Gil that you need money. That it is important in order to achieve what you want monetarily," she says. "I want him to know that in order to make money, you have to work for what you get. I want him to value money for what it is -- a means to buy things.

"I will also teach him not just to acquire money, but that it is important to give some back to the community. Making money just for the sake of making money should not be his sole purpose," Ms. Kuta says. "Money is not the be-all and the end-all to everything."

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