Fiduciary Kid Stuff

Today's children are the investors, consumers, homebuyers – and retirees – of tomorrow. Yet most parents think today's high school graduates are “totally unprepared” to manage their own finances.¹

Many teens don't understand basic financial concepts. According to one survey, just 23 percent of high school seniors understood that the interest earned on a savings account may be taxable.² In another survey, 22 percent of teens didn't know that loans must be repaid with interest.³

At a Federal Reserve Board conference in April, chairman Ben Bernanke addressed this issue and said that financial literacy for young people is vitally important for the nation's economic future.⁴

One way to teach kids how to handle money is to give them some real-life experience. Here are some ideas to help the young people in your life get on the road to a solid financial future.

A Meaningful Allowance

Kids have expenses. Instead of granting an allowance based on an arbitrary measure, such as their age or grades, consider paying your children enough to meet their expenses (such as clothing, school supplies, lunches, and transportation) and then let them manage the money, much as they will need to do with future paychecks.

You might add a little extra for recreation. Make it clear exactly which expenses they are expected to pay out of the allowance and remind them that the money must last until their next “payday.”

Stocks Can Be Fun

Teaching kids about investing can be more fun if they own something familiar. Consider helping them buy a few shares in the parent company of their favorite sports team, food, or other product. When you track the stock's price together, it presents an opportunity to discuss why the price has gone up or down, how to track profits, and the tax consequences they could face by selling or holding the stock.

Taking the time to teach children to be financially savvy can be a great investment. In addition to showing them how to be responsible with money they have today, you could be helping them learn to avoid costly mistakes as adults.

1, 3) Money, December 2005
2–4) MSNBC.com, April 5, 2006