Teaching your children about finances

Have you ever wondered what your life would be like if your parents had bought 100 shares of General Electric or Disney stock for you every year beginning on your first birthday?

Hindsight is 20/20 and you can't change the past, but you can change the future. Do for your child what your parents didn't do for you, and help your child learn the importance of savings at an early age. The extra years of savings combined with compounding earnings will create a healthy nest egg.

If you begin giving your 12 year old child $20 a week allowance that you sock away in a Childhood IRA and the funds grow at an average of 10 percent annually, your child's IRA will be worth $16,575 in only ten years. If you don't put in another dime after your child turns 20 and the fund continues to grow for another 45 years, at age 65 the IRA will be worth more than $1.2 million. Is that enough of a motivator to start your child saving? Use our financial calculators to estimate how much your child can save.

How do you teach your children to save?
Much like other behavioral lessons, your actions speak louder than words. Set a good example by demonstrating the importance and skills involved in saving money.

Here are some activities:
1. Play games: make up games that reinforce the skills of saving like addition, subtraction and counting. Set up a pretend bank with paper money or use spare change.

2. Share your home finances with your children: A spread sheet is not necessary, but when it's time to write that check for a field trip or school event, take the time to explain the concept of the money behind the paper you are signing.

3. Award allowance but require savings too: Set family guidelines for allowance spending. Include saving a portion of the weekly allowance in your policies.

4. Pick a stock: Allow older children to select stocks of products they frequently use, and teach them to follow the company symbol in your daily newspaper or online.

And remember a habit is hard to break.

Here are some additional tools to help you in creating a financially responsible youngster.

The Ultimate Kids Money Book by Neale S. Godfrey
This book is full of easy to understand investing concepts presented in an imaginative way without being too cartoonish.

The National Association of Investors Corporation
Receive free information on starting a family investment club. If you sign up, an annual fee of $40 and $14 per member per year will give you primers on investing basics, a monthly magazine and a guide to starting and running a profitable investment club.

Citibank offers free brochures on kids and money. Booklet includes: How to manage summer salaries, how first-time filers deal with taxes and money matters for young adults.

Stein Roe Young Investor Fund
This is a mutual fund that caters specifically to kids.

USAA First Start
A money management program for kids consisting of a savings account and a mutual fund investment in USAA First Start Fund. 1-800-531-0553

Also see: Shaping up your financial future