Teach your teens about finances

This was originally published on Monday, February 20, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

Giving your children a good foundation and teaching them about financial matters is critical for their personal development. Knowing how to budget, spend and save will establish good money habits for life.

If children develop good financial skills, they will be ready for the financial challenges that adulthood brings. Teaching children the value of money, especially through real life scenarios, will help them understand where money comes from, how it is earned and how to save it. As kids become older, real life situations and examples are the best way to learn.

Ages 13 to 18

This age group has started thinking about college and what they want to be when they grow up. At his age they can start thinking about long term financial goals. It is a good time to learn about the stock market, budgeting, and being responsible for their spending.

  • Compound interest. Simple math can teach how compound interest can be used to make money grow. Show them the effects of different interest rates on the same amount of money. Show them how compound interest can work against them when using credit cards.
  • Long-term goals. It’s always good to think about the future. Kids at this age have many wants and are tempted to spend as soon as they get money. Help them see that delaying what they can buy today can make a huge difference in what they want later. Using what they have in their savings account, let them calculate how long it will take to save and pay for it.
  • If not sooner, when your child reaches the ninth grade, sit down with your child and discuss the cost of college. Being honest about how much you can afford will help them set realistic goals when they start looking at colleges. Help them see there are other ways of funding college. Start looking into scholarships and grants.
  • Credit danger. Children often don’t see money exchanged for purchases in this world of invisible money. Invisible money is used when people use credit cards, internet banking and online shopping. It sets a false sense that money is limitless. As soon as your child turns 18, he or she will be inundated with credit offers. If they don’t understand the dangers of credit, some may fall into the credit cycle many get trapped in.
  • Help them start their first budget — how much they make versus how much they spend and save. Include money needed for gas, lunch and entertainment. Create a checking account for them. This will help take money managing a step further. If they fall short, don’t bail them out. They need to understand the consequences of their decisions and actions.
  • One thing many teenagers have is free time. Maybe they can get a job over the summer. Summer jobs are a great way to learn responsibility. It can teach them about what employers expect and how much one works to earn money.

Maybe they can start a side business to earn extra money from babysitting, cutting lawns, or pet grooming and walking. Another way of making money is clearing out their room and holding a yard sale. By this age, they’ve collected items from prior years that no longer entertain them. Why not turn those items into cash?

  • Stock market. Give them a pretend amount of money and have them “invest” in a company that interests them. Evaluate the stock’s performance over a period. Discuss what current events may be driving the prices and causing the values to fluctuate.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com

 

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Financial tips for kids ages 6-12

This was originally published on Monday, February 13, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

How many of us look back at childhood and wish we were introduced to money and finances at an early age?

Unfortunately, many schools no longer teach the importance of saving, spending and investing money. Learning about credit and balancing a checkbook is a life skill as important to being a successful adult as reading, writing and arithmetic. Children want to learn about money and, depending on their age, there are lessons for every age group.

Ages 6 – 12

At these ages, children can start doing chores around the house to earn money. It is also a good age to start teaching them that money has a limit. Help them make choices that display the concept that once they spend the money they have, that is it, they must earn more to spend more.

  • Allowance vs earning: This subject is always a difficult one for parents. Do I give my kids an allowance? But why just give it to them? Hardly anyone just sits around and earns money, so why should children be any different?  The media has flooded television with programs with kids who are well off and have nothing better to do than party. But we all know that real life is far from that fantasy. Pay your kids for chores around the house such as washing dishes, vacuuming, washing the car or taking out the trash. This will instill in them that money is not just given to them but they must earn it.
  • Want vs. need: Many adults have trouble with this lesson. Help your children understand the difference. Something wanted is something you desire and is not necessarily needed to survive. Need is something you have to have to survive. Teach them that their money is best spent when you purchase your needs first.
  • Power of decision making: Children at these ages can start asking for some expensive items. If they want a video game and a new pair of basketball shoes but they only have enough for one or the other, they must decide which one to buy. Kids can make decisions and weigh the consequences of those decisions.
  • Involve them in family finances: When going to a store, explain why you choose a less-expensive brand or why one is a better deal. Ask which they think is a better deal. Talk about deals like bulk items.  Also teach them how stores can trick you into thinking you are saving, especially with deals such as “buy two and get a third for half price.”  If you are going to the store for one, why spend more to get a deal on a third?  While shopping, ask financial questions such as “Do we want this or do we need this?” “Can we get this from somewhere else at a better price?” Should we hold off till next week to purchase this?”
  • Bank account. This is a good age range to open a savings account for them. Watching the balance grow is a great way to teach them how the bank pays interest to their customers to hold their money. Now that they are earning money, they can make regular deposits. Encourage them to put money from special occasions, such as birthdays or the holidays, into their account.
  • Giving. Giving and taking care of others is just as important as saving. They can pick a charity, an organization, or even a person whom they wish to help. Maybe they can use it at a bake sale or a fundraiser. Either way, helping others is a great way to give back and it will make them feel good about themselves.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com

Teach your children about finances

This was originally published on Monday, February 6, 2017, in the Pacific Daily News.  Click here to subscribe to the PDN.

Question: I have made some financial mistakes that took years to overcome. I am now about a year out of debt and turned my credit score completely around for the better. My parents never talked about money and I think if I had learned about it sooner I may have been able to make more sound decisions.  My question is, when should I start teaching my children about money?

Answer: As a parent, it is important and our duty to teach our children important financial lessons. Your financial history gives you the tools to become a great teacher to your children.

Now that you have learned about managing your finances, it is logical that you want to ensure your children don’t make the same mistakes. Many parents don’t talk to their children about finances.

Parents are the No. 1 influence on their children’s financial behaviors. You have the opportunity to raise your children to be savvy in spending, investing, saving and giving.

According to researchers at the University of Cambridge, kids’ money habits are formed by the age of 7. That means there are several years before the age of 7 to start introducing them to money and finance ideas. Teaching your children about money is a necessity. The method depends on their ages.

Kids at ages 3 to 5 will start to get curious about money. Although they may not truly understand the value of money, they can start to learn the name of the coins and which dollar bill is greater.

  • Wait for it. This generation is surrounded by instant gratification. No longer do they have to search through encyclopedias for answers or wait for a letter in the mail. However, the ability to delay instant gratification is a skill that will keep them from depending on credit or going into debt as an adult.

Teach them that if they want something, they should save for it. If there is a small toy that they want, help them save money in a jar and when they have enough, take their money to the store and have them make the purchase.

  • Three jars. Clear jars are a great way to teach kids about money because they can physically see their money grow or shrink. Label the three jars “savings,” “spending,” and “sharing.”

Every time your child receives money, have them divide the money equally among the jars. The savings jar should hardly be touched and can be used to buy a more expensive toy or just to grow. The spending jar can be taken to the store to buy smaller items that they want. The sharing jar can be used to help a friend or go to a cause in which they are interested.

  • Play time. Kids have great imaginations. Set up a store or a restaurant in the living room. They will learn the basic idea of spending and commerce by using play money and exchanging it for goods. There are many board games from which play money can be used,
  • Coupons. Go through the newspaper or magazines and have them clip coupons with safety scissors. At the store, hand your child a few of the coupons and have them search for the item at the store. This will make them feel like they are helping the family save money.
  • Set the example. Kids are sponges and they learn from your habits and behaviors. If they see you using credit cards or constantly arguing about money with your spouse, they will mimic these ideas and actions. Remember they are watching you and you should set a healthy example for them.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com

Tips for raising financially smart kids

This was originally published on Monday, August 24, 2015, in the Pacific Daily News.  Click here to subscribe to the PDN.

As a parent, teaching your child the importance of financial skills is imperative. Many young adults are not prepared to handle daily financial decisions and the consequences that may come with them. In this rapidly changing world, teaching your child how to manage money is more important than ever. There is plenty of misinformation out there that children hear about finances especially as they get older. It is best to hear the correct information from a trusted source. Here are some tips for raising financially smart kids:

Start early – it is never too early to start. Form an early age, explain why you work and why the family needs money. Children really start to understand the importance of money around the time they start school. As they get older, start introducing the concept of saving, investing and credit.

Teach the importance of hard work – what do most kids know about money besides the fact that there is never enough and that it mysteriously comes from mom and dad? As they get older they will soon find out that money literally does not grow on trees or come from machines and that they will have to earn it. Today’s society is full of messages of being entitled. As a parent we want to instill that a good work ethic. Sit down with your child and discover how much certain jobs pay. Of course it is not all about the money when choosing a job. The love for what you do is just as important, if not more. But it is good for them to know what the future holds and to prepare accordingly.

Involve them in the family shopping – the best way to get kids to understand that money is not limitless is to get them involved in the family shopping. It is a great way to learn how much money is required to purchase everyday items. Explain to them the importance of spending wisely and how it effects what they want.

Let them practice – give or let your children earn an allowance. Let them decide on how they want to spend their money. Give them the power to make choices. If they want to spend it all on toys and then want something else, remind them of their choices and that they will have to wait until they have the money. Help them create a list when they go shopping.   Have them total up how much it will cost and what their change will be.

Taxes – No one is ever quite exempt from paying taxes. Explain to your children that the government has to provide certain services, so we pay taxes. I have seen parents include taxes in their children’s allowance to help prepare them.

Mistakes are part of the lesson – when you started to learn about money you made mistakes and so will they. Use your mistakes as teaching points. A parent’s instinct is to help. If they were saving up for a new game and do not have the money, don’t bail them out. Let them wait and earn the money they need. By bailing them out you are teaching them that they do not need to stick to the amount they have been given. If you do give it to them, this is a great time to teach them about interest. Let them know that they can borrow the money from you but they will have to pay more than what they borrowed initially. Helping them be disciplined and understanding how credit works at a young age is a lesson best learned when the stakes are not as high.

Give back – teach your child that as a citizen of the world, caring about others less fortunate is a good thing. They can keep a jar of loose change all year long and during the holidays make a donation. They can donate items they no longer need or volunteer.

Be the role model – let your children observe you practicing what you preach. Be open about your budget and spending priorities. If you want a high price item let them observe you holding off until you saved enough. Putting instant gratification aside is a mature characteristic and one that is practiced and learned. If times are rough find a way to involve your children in an age appropriate way.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Teach your teen how to make a budget

This was originally published on Monday, August 17, 2015, in the Pacific Daily News.  Click here to subscribe to the PDN.

Q: My teenager just started driving and my husband and I are thinking of opening a checking account for him. Do you have any tips to help teach budgeting to a teen?

A: One of the most important tools you can teach your teen to be financially healthy is how to create and stick to a budget. It is great that you are taking initiative to teach him. Unfortunately many teens do not gain the skill of budgeting before going off to college or obtaining their first job. Teaching teens how to budget their money today will instill good spending habits for the future.

Sit down with your teen and discuss how much he will earn monthly. Have him list his monthly expenses such as gas, clothing, incidentals, and entertainment for which he will be responsible. Come to an understanding about what you are willing to pay and for what he will pay. Include paying for proms, yearbooks, class ring, and so forth. Talk to him on how to put some money aside to save for emergencies and to save for those large expenses. Agree on a percentage of how much he should save. Let him start with the monthly budget you both agree on. After a few months reevaluate the budget and make any necessary changes.

One of the best ways to teach your teen about budgeting is to share your household budget. Many parents feel that the amount of money they make and how it is spent is personal. But being open about how money is spent in your household will only benefit your teen. Talk about how to prioritize where the money is spent and how to save in real-world scenarios. A survey performed by the Consumer Federation of America found that only 73% of parents feel capable of teaching their children about finances. Some parents may feel inadequate because of their financial woes. If your financial health is not the greatest, it is a lesson that you can pass on to your son. Discuss what decisions you made that put you in the predicament you are in today and what steps you are taking to correct it. You may want to stress that it is a personal family matter and that it stays within the immediate family. Parents play a very important role in teaching their children about finances. Don’t let your financial confidence or stability stop you from teaching your child.

Among the hardest lessons for both teen and parent are the consequences of not following the budget. If your child comes up short at the end of the month and wants to go to the movie, bailing him out will not teach him to stay within his means. It may mean having to say “no” and wait till the next pay period. It is a lesson best learned now instead of later down the line when the consequences are much more dire.

Another lesson teens should start being aware of, is how debit and credit cards work and when it is acceptable to use them. Like anything else, there are pros and cons. They are great in emergency situations, it builds good credit history, it may earn valuable reward points and it does give you time to pay. On the other hand, interest adds up and depending on credit cards to overcome shortfalls in the budget can lead to some unfavorable practices. Discuss what a credit score is and how a bad credit score can effect getting a job or a loan, or even purchasing a cellphone.

Learning how to invest money at this age is also beneficial. Go online and find a financial calculator and discuss how much money they want to retire. Break it down into how much a month they will need to put away to achieve it. Inform them on how retirement funds and the stock market work. If you need help there are many online tools to assist.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com.

When to teach kids about money?

This was originally published on Monday, August 3, 2015, in the Pacific Daily News.  Click here to subscribe to the PDN.

Q:  My wife and I have a 2-year-old daughter and have different opinions about whether or not our daughter is too young to start learning about money. Do you think you could give us some advice on when it is appropriate to teach kids about money?

A:  I want to congratulate you on at least talking about teaching her the value of money. Of course when and how is different in every household along with the maturity level of the child. I believe that teaching kids to be financially aware at an early age will set them up to develop good financial skills as an adult. Setting a good foundation early is the key.

Personal finances have changed a lot in the past 10 years.  Most people rarely carry money anymore and the use of “invisible” money is much more present. Children see parents at a store using credit or debit cards, banking and shopping online, and getting money from a machine. This can be quite confusing since they never see an exchange of money and may get the idea that money must come easy. My daughter once said, “Daddy, just get money from the machine; it always has money.”

Teach kids with real-life situations.  You use money every day, so there are many opportunities to teach where money comes from and how it should be spent.

ATM – Kids see you put your card in and money magically appears. Explain that when you go to work you are paid. The money you are paid goes to the bank, which safely holds your money. When you need your money you take it from your bank account which means you have less money to spend.

At the store – This may be the best place to have your children understand how money really works. Usually when we shop we are faced with different prices for the same item. Explain why you make the decisions you do when picking out an item. Does it cost less? Do you get more in the container? Although she may not be ready to know which costs more, just opening up the discussion is a good way to get the lessons started.

Don’t be afraid to say “no” when out shopping with her. As she gets older, share with her that it costs money to buy things and you can’t always get what you want.

Paying bills – If you pay your utilities at a bank or at the agency take your child with you. Let them see that you have to pay for the power they use to watch television or the water needed to take a shower. Help her understand that paying these bills must be done before paying for a new toy.

Receiving money – At your daughter’s age she might not be ready to start doing chores around the house. She may get your change after a transaction or from family. Help her start identifying the different coins. A fun way is to set up a play store and have her shop for different items. By exchanging money for goods, your child will start to understand how commerce works. As she gets older, add coupons and sales.

Start teaching her the difference between needs and wants and that you have to have money to purchase items or services. Just as you would teach her about good manners or being safe, teach her at an early age to foster skills that will help her be financially smart.  That is a lesson that is never too early to start.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com

Kids learn early, so teach good financial sense

This was originally published on Monday, November 3, 2014, in the Pacific Daily News.  Click here to subscribe to the PDN.

Question: I have three kids ranging from elementary through high school. I would like to start teaching my children about the value of money. Do you have any suggestions?

Answer: Children learn early about money even when we don’t teach them directly. A 5-year-old watches money exchanged at the grocery store, a dinner paid with a credit card, or a parent getting money out of an ATM. Financial education should start early and at home. Children who learn how to be financially literate grow up into adults that are more responsible with money.

Unfortunately, many parents avoid talking to their children about money. Parents feel that they have to be financially stable to teach it. That thought cannot be further from the truth.

If your finances are less than desirable, work with your children in getting your finances back on track and set an example. Just like any other challenging topic, if you don’t teach it to them, someone else will.

We live in the age of instant gratification. How many times have we gone into a store to buy an item and were talked into buying a toy or candy? Kids at a very early age should be taught that “money does not grow on trees or come out of a machine.”

Teach a young child that going into a store does not always mean that you are there to buy something. Once a child learns that you must save to be able to purchase an item, they will start to instinctively become more conservative with money.

Have a young child set a goal to buy a small toy. Create a savings jar and once they have reached their goal take them to purchase it. This will show the importance of saving money.

Around 6 years old, begin teaching needs versus wants and how money should be spent on needs first. Needs are necessary to live, wants are things that we would like to have. Knowing the difference between the two will help them spend money more wisely. While shopping, explain if an item is a need or want. When purchasing a more expensive item, explain how long you saved for it. Get kids involved in some of the financial decisions. The grocery store is the best place to learn about price comparison and saving. Looking out for the Kmart and Cost-U-Less ads and using them while shopping is also a great educational tool for learning the value of money.

Once kids get into middle school, introduce them to compound interest. Explain how it works favorably in a savings account but causes you to pay more for an item on a credit card. Teach them about long-term financial goals. Explain that what they give up today, will eventually pay off tomorrow.

For example, if your child has a routine to stop at a store after school every day and spend $5 on a snack, educate them that if they were to cut back to buying a snack twice a week, they might have enough money in a month or two to purchase those expensive sneakers they have been wanting. This is a good age to get them to start putting money aside, not only for savings but for a rainy day emergency fund.

Kids in high school and college have more wants and bigger responsibilities. Get high schoolers interested in the stock market. They might even want to start investing some their savings. Help create a budget. Include cost of dances, yearbooks and fuel. Parents can open up a pre-paid debit/credit card to help them stay on budget.

They will soon learn to make wise spending choices once they understand that the money isn’t infinite. Sit down with college students and help them look for a low-interest-rate credit card. Explain that the card should be used for emergency purposes only and not on everyday items. Emphasize not to spend more than they can pay off next month.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at http://www.moneymattersguam.wordpress.com.