Thursday, Sep. 16, 2010

Nine years old

It's never too early to start teaching about money. Well, almost never. I'd skip bedtime readings of Benjamin Graham's The Intelligent Investor while your darling is still in a crib. Financial osmosis doesn't work any more than round-the-clock Mozart will in quest of an infant genius. There are things you can do, though, and I'll get to them. First, some benchmarks: By age 3 or so a child should be identifying coins and by 5 he should know what those coins are worth. By 9, he should be able to make change, read price tags, understand a store's product return policy and know how to make money by selling lemonade or doing extra work. He should understand the difference between wants and needs and how saving will allow him to buy something better later on. He should be able to identify at least one charitable organization and give examples of common household assets like a car or bank account.

Advice: Young kids should receive a weekly allowance of about half their age (in dollars) and along with any birthday money be instructed to keep the money in three separate jars — 60% for immediate spending, 30% for one or two specific longer-term goals like a cell phone upgrade or iPod, and 10% for giving to charitable causes. Let him spend the money anyway he wants within those bounds. This will help teach the difference between short- and long-term goals and predispose him to giving as well. "I often talk to clients who are great savers," says Kelly Campbell, a financial planner at Campbell Wealth Management in Washington DC. "Inevitably it is because their parents started them off with a great savings lesson long ago."