No one wants to raise an Ebenezer Scrooge – or a Kim Kardashian. What should you do to avoiding ending up with a miser – or a spendthrift? Michael Sullivan, a 64-year-old grandfather who is director of education for Take Charge America(a nonprofit credit and housing counseling agency, throws in his two cents. Excerpts:
Is it OK for grandparents to meddle? And if so, how can they do it wisely?
Grandparents have an obligation to meddle! What I do is on the birth of each of my grandchildren, I always present them with a piggy bank. As soon as kids are old enough to carry coins without putting them in their mouths — for most kids around their second birthday – I start making a ritual when I visit of having pocket change that the child puts in the piggy bank. I want to associate from the earliest times that saving is fun. I shake the coins, and say, "Look how it [the money in the piggy bank] is growing!"
What about the old idea of giving grandkids U.S. savings bonds?
I used to, of course, love to buy savings bonds for the kids. The U.S. government has decided that's no longer a good activity. You can't buy paper bonds any more. Frankly, I think they've gone out of their way to make it difficult…When my children [now ages TK, TK and TK] became adults, and I gave them the bonds their grandparents had given them, were amazed at how much they'd grown.
What about opening a 529 college savings account for grandkids?
The safest thing to do is open an IRA in the grandchildren's name. If it's a Roth IRA, which I recommend, it can pretty conveniently be used for education. A Roth IRA is done with after-tax dollars, so there's no tax penalty when you withdraw. Since it's retirement income, it also doesn't count against children when they apply for financial aid…But that's investment, it's not teaching.
You've talked about grandparents. What about parents?
You have to do what's appropriate for the child developmentally. That's why I start with coins. Then give them money so they make decisions. You've got to start dealing with the idea of delayed gratification. [At 5 or 6, say], "I'm going to give you $2 today. You can buy a toy. You can buy ice cream. But that's all you're going to get. You think about what you want, and you tell me when we're done shopping. As the kid gets older, you want to reinforce that with bigger things. When a kid is maybe 9, and the kid wants something — a video game system, a bike — that's when you start engaging the kid about saving larger amounts.
How do bank accounts fit in?
If a kid has to save $200, you say, "It's probably not safe to have it around the house. Let's go put it in the bank, and you'll learn a little bit of interest." It's really just a conceptual thing that you can save money and not have it in your dresser. It should be for a purpose. That way they're motivated to look and see how the balance is growing. You make a big deal out of things like deposits. You earned $5 this week. Let's go down and make a deposit.
What should you say when kids note that the money isn't growing very fast?
One of the problems we have in this country is that lack of patience. There are a lot of things that take longer than they should. That includes saving and education and romance.
So how do you teach your kids to be responsible with money for life? [His kids are 30, 38, and 41, and his grandkids are 2, 4, and 9.]
With my children, by their senior year [of high school], my goal was to write them a check at the beginning of the school year, in August, and to say, "Here's your money for the year. This is for your clothing, for any extra school expenses, prom." I would give them what amounted to a line item budget. I would tell them what I would assume, and then I would write them a check, which they would have to deposit in their banking account. I never told them whether it had to be a checking account or a saving account. Invariably, with all three kids, in April, somebody would come to me and say, "I don't have enough left to buy the prom dress I want." I would have to say, "I'm sorry. What can you do about that? You can save somewhere else, or you can earn more."
How are your kids with money these days?
They're all extremely responsible. None of my children has ever needed to borrow money from me. It works. That's the goal is to give kids more responsibility with age until, by their senior year, even if it's your money, they're 100 percent responsible.
What do you think about debit cards and teens?
For a lot of kids, it's tempting to spend a bit more because it's plastic. [Wait] until you know a child can equate plastic with cash.
Other than Take Charge America, what resources can parents use if they want help teaching kids of all ages to be good with money?
One group that does a pretty good job is America Saves. They have a good website and a bunch of stuff up on saving and teaching kids to save. We at Take Charge America have put a bunch of money into curriculum for schools. We partnered with the University of Arizona. All schools should teach it and reinforce it. But parents have the primary obligation, and grandparents have a secondary obligation.
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