Money trees and other myths

Calgary Herald | by Trent Edwards | May 10, 2009 | read source

Most of us heard it from our parents: money doesn’t grow on trees. But was that where our finance education at home ended?

All too often, that’s the case, according to Stacy DeBroff, a parenting author from Boston who recently wrote A Parent’s Guide to Raising Fiscally Responsible Children (Simon & Schuster, $12).

Despite their good intentions, parents are setting their kids up for a life of financial failure by sheltering their children from hard financial realities.

“We have felt enormous pressure to have our kids succeed and to do the best that they can academically, in sports and their outside pursuits. And as a result we have shielded them from discussions about family budgets, about larger issues when it comes to spending, credit and debt, mortgages,” she says.

In previous generations, children were expected to earn their spending money through part-time jobs. But in recent years, the bubble-wrap trend in parenting culture has pushed parents to give their children a leg up in an uber-competitive world by absorbing all of their children’s costs, DeBroff says.

She figures all of these changes have led young people to believe they’re entitled to all the latest gadgets and fashions.

“There’s this immediate gratification: ‘I really, really want this great pair of jeans,’ not ‘I can’t afford this pair of jeans,’” she explains.

This disconnect from the need to budget sets teens up for a shock when they leave home. Suddenly, they face the harsh reality of paying bills for rent, food, and often tuition at a post-secondary school. At the same time, their introduction to the joys of magic money — credit cards that only require you to pay off a minimal amount of your debt — can turn minor cash flow problems into long-term debt that sometimes leads to personal bankruptcy.

“They often find themselves digging themselves out of a personal finance hole in their 20s,” DeBroff says.

Parents may think that their children are learning personal finance skills at school. After all, Alberta Education has made it mandatory for high schools to teach a Career and Life Management course that explains the basics of budgets, spending, goals, taxes and investing.

But Darren Weeks, a personal finance guru from Edmonton, didn’t mince words when asked if schools are doing enough to educate teens.

“Not even close,” said the founder of the Fast Track To Cash Flow.

Spokespeople for both the CBE and the Catholic Separate School District say that the onus is on parents to make the school’s lessons of personal finance education stick.

“The schools are often seen as a catch-all for education, but parents are the primary educators of their kids when it comes to personal finance,” says Janet Sutherland, a spokesperson for the CSSD. “It’s up to parents to reinforce what the kids learn at the schools.”

Weeks and DeBroff agree that parents are ultimately responsible — young people are much more likely to learn personal finance lessons when they are taught at home, they say.

“Often times what you do with money is deeply tied into values,” DeBroff explains.

So what can parents do to set their children up for a lifetime of good financial decision-making? Start teaching financial lessons as early as possible, say DeBroff and Weeks.

DeBroff recommends easing a child into the world of personal finance at age five with an allowance, which can be connected to chores done, so the child learns how much work is valued.

This introduces a child to budgeting, usually in the form of setting up a savings account and spending less on immediate wants (candy) in exchange for greater long-term happiness (a new bike). They also learn that bad behaviour or shoddy work (backtalk and clothes on their bedroom floor) can result in the loss of income.

Weeks has his own children — Ava, 4 and Connor, 6 — split every dollar they earn from chores into three categories: one third for long-term savings, one third for spending, and one third for charity. He also recommends parents encourage their children to play games that revolve around money. These include the classic Monopoly, along with The Money Savvy Pig piggy bank, which has four chambers: Save, Spend, Donate, and Invest (msgen.com, $16.99) and The Allowance Game (Lakeshore Learning, $21.99).

It’s around age 13, however, that finance education needs to ramp up, DeBroff says. How do teens manage money from their part-time job, for example, or those cheques they get every Christmas from Uncle Bob? At this age, it’s important to impart a clear sense of what a child’s spending habits require them to give up in terms of hours worked and future opportunities lost.

More complex personal finance ideas, such as building a credit rating and investing, can also be better understood by teens. Parent-supervised credit and debit cards, including secured and pre-paid options, ease teens into the perilous world of plastic by helping them track and manage their spending. Some even allow parents to set daily, weekly and monthly spending limits.

Even if your child makes some financial mistakes, such as losing all their savings in high-risk investment schemes, it’s better they learn their hard lessons before they leave home.

“Just like investing, an earlier start leads to a higher finish,” Weeks says.

Sure, money doesn’t grow on trees. But it pays to start early if you want to grow a money tree with deep roots.