Mind over money: Start early to teach kids smart money habits

If you want your kids to be smart with money, you have to start teaching them early -- and be smart with your own money.

"Teaching at a young age is a valuable life skill lesson that makes them wiser consumers and financially responsible adults," says Wendy Hayes, Kid's Club coordinator at Montgomery Bank in Cape Girardeau. Kids need to learn about balancing a checkbook, spending and saving money and making good credit choices, which all come into play when it's time to find a job, buy a house and pay the bills. "Financial literacy affects all aspects of day-to-day living," says Hayes.

Here are some ways to teach dollars and sense to children of all ages:

> Model smart money habits.

"Children should learn good behaviors from us when it comes to living within our means and saving and investing," says Tim Domian, a financial adviser with Edward Jones in Cape Girardeau. "Sometimes what you do is more important than what you say. Stress the importance of delaying that immediate gratification."

For example, if your child asks why you don't go ahead and buy that new car you've been admiring, explain that you don't have the money for it right now, and you don't want to have to borrow the money and have an even bigger payment later on.

Hayes recommends letting kids in on some of the things you do financially for the family, like paying the bills and balancing the checkbook.

"Let children be involved," she says. "It will allow them to understand where their parents' money goes and the importance of avoiding overspending. They will be better equipped to manage their finances."

> Explain the value of a dollar.

A big thing here is making sure kids understand needs vs. wants.

"Get together and talk to them about budgets. We all want things, but talk about what is needed and what are the priorities of spending," says Hayes. Do they want to buy this item right now, or save money for something bigger and better? Explain that when they buy something they also have to pay taxes on the item, so it will cost more than the number on the price tag; also explain inflation and deflation.

Try giving kids an allowance or paying them for household chores. This responsibility will help them understand that they have to work for their money and then use it wisely.

"Sweat labor is a great way for kids to get started in learning more discipline and having a little pocket money to purchase things," says Domian. "They can save up for items they want. The real value is when they earn money and spend it on something they want, then they have to take care of what they get."

> Reward good behavior.

"Children, like adults, tend to repeat behaviors when they're rewarded in some way. If you want your children to become good savers, match their contributions fully or partially when they put money away," says Domian.

He also suggests keeping the kids' money in a big jar where they can see it. When they save up to a certain amount, allow them to withdraw part of the money to purchase something they want. Or, take them to the bank to open their first savings account, explaining how money in the bank collects interest and grows faster, says Hayes. Many banks, including Montgomery Bank, Bank of Missouri and First State Community Bank, have savings programs just for kids, as well as checking accounts for teenagers.

> Don't forget about sharing & investing.

If charity is important to you, teach kids about sharing their money, says Hayes, perhaps by tithing at church or donating to causes they're interested in. Also, the stock market is a good way to teach inflation and deflation and how investing money can make it grow.

Domian suggests purchasing a small share or gifting a share to your child, then following it together on the stock market. Explain how a stock is like owning a small part of the company -- anyone can buy stock, and it can "accumulate into a nice chunk of change." Make this more fun by investing in companies your kids know and like, such as Disney or McDonald's.

It worked for Domian: He and his siblings received gift shares of stock when they were kids, and Domian and his brother both grew up to be financial advisers.