Financial Education in School

Time Magazine recently published an article titled How to Teach Kids About Money. The article stated that kids aren’t receiving enough information about money management and even more startling, that financial education programs don’t always work. I think it’s wonderful that schools are trying to teach children about how to properly use money, it’s an invaluable life skill and is as important as learning to work with people who are different than you are. But no one should be surprised that financial education in school isn’t enough. Children don’t perform as well in any of their subjects if they are lacking support at home for whatever reason. Parents cannot abdicate their responsibility to educate their own children in any area of academics, including financial literacy.

Of course there are many parents out there who didn’t understand how to manage their own money as evidenced by the amount of mortgages that people couldn’t afford long-term. To be fair, some people purchased responsible mortgages then lost their source of income; but there were also those who purchased ARMs or other risky mortgages and found themselves in over their heads.

There are scores of people today who are learning how to manage their money because they have no other choice. This is a golden opportunity to teach our children by allowing them to understand how and why we’re making the decisions we are about our money. If they hear us talking about saving for a big purchase rather than buying on credit, or making value decisions about what we need and what we want, they’ll learn to make responsible decisions with their money. Of course the kids will make their own money mistakes and mistakes can often be the best teacher, but giving them a solid foundation could help those mistakes to be less catastrophic.

Spending Money We Don't Have

I’ve been a bit reticent in my posting lately because sometimes life just gets in the way! However, I recently ran across a story on NPR that I just had to chime in about though. Consumer Spending Up, Incomes Lag talks about the increase in spending that resulted from programs such as Cash for Clunkers while income growth continued to be just about flat.

As a proponent of good debt only, this story scares me a bit. If we’re not making more money, we shouldn’t be spending more money. The statistic offered about the falling savings rate was also a bit disconcerting, but did have some good news when compared to savings rates last year.

“The big jump in spending and much weaker gain in incomes translated into a big drop in the savings rate. Personal savings in August fell to 3 percent of after-tax incomes, down from 4 percent in July. That was still nearly double the savings rate of a year ago. Economists say the savings rate will keep trending higher as households try to repair investment savings shredded by the recession.”

We all want the economy to recover, especially so people can get back to work. But a recovery based on additional debt won’t be a long-term permanent recovery, it would just put us back on the precarious house of cards that our economy was built on before the recession occurred. So the Money Maiden’s advice is to keep putting that money into savings so that we can all benefit from a stable economic recovery.

How The Recession Can Help Us

Back when I first started this blog and before the recession had really taken hold, I posted a link to a very good article by Liz Pulliam Weston. She talked about the impact it would have if we all started to increase our savings and use our money more wisely. She predicted that the short-term impact would be a global economic recession since our economy was so dependent upon consumers. But she thought it would be good in the long-run because of the positive impacts to both individuals and the broader economy.

I remember at the time thinking that managing our money and living within our means was still the right thing to do, but that it might be hard to convince people to do this because of the pain of going through a recession. Well folks, the recession happened, whether or not we wanted it to. So if we have to go through this, it’s encouraging to me to hear that savings rates are going back up (although no where near the high of 14.6% we saw in 1975). More people are starting to live within their means now. So maybe we’ll get the long-term benefits the article listed even though this wasn’t an entirely voluntary decision.

When to Start Allowance

I received a question from a reader in a comment that seemed worthy of its own blog post.

What a great blog Darcy! My son is just getting an interest in money and saving. When did you start a weekly allowance w/ the kids and how much do the kids earn? We are trying to figure out when and how much to start our son out at, and what parameters to tie it to....there are only so many chores a 4 year old can do! :)

Obviously you have to do what works in your family, but here's what we do with our kids: We started the allowance when our kids turned 4 years old, and they get $1 per week for each year old they are. So my 8-year old gets $8 per week. We don't explicitly tie the allowance to chores, although they do have chores and we add more each year. So I guess it's more like a salary for them, they get it as long as there aren't serious deficits in getting their chores done.

I don't like to tie allowance directly to chores because I don't want to send the message that the kids will get paid for doing things that are a part of their job in the family (and no one pays me when I do the dinner dishes or the laundry!) But we have docked their allowance in the past if the kids didn't do their chores in a particular week.

Our kids are expected to keep their rooms picked up, including making the bed every day. They have to get their clothes into the hamper and their dinner dishes into the sink every evening. The 8-year old also has to sweep under the table after dinner and clean the toilets once per week.

I think 4 years old is a great time to start allowance for the exact reason listed above, they start to get interested. In my humble opinion, one of the best things we can teach our kids about money is that you have to earn and save money before you can buy the things that you want.

Good luck implementing the allowance, let me know how it goes!

"Going American"

My family recently hosted a wonderful young man from France through a foreign exchange program. Although we don't speak any French so we occasionally had to try more than once to understand each other, we made it work; and the cultural exchange of information along with a new friendship were well worth the effort.

One day he and my husband were discussing debt and he told my husband that in France the only debt people take on is for big items like cars and houses. (Sounds awfully familiar.) He said that it would never cross his mind to take out a loan for something small like a TV. He actually said that if someone ever talks about taking out a loan for a small item they call it "Going American." I don't know that it's such a great thing to have our country associated with frivolous debt. I can only hope that over time if more and more people are smart about debt that phrase will lose it's meaning and go out of vogue.

Where We Do Need To Spend Money

I realize that I'm a bit behind the times, but I recently watched An Inconvenient Truth and was pleasantly surprised by the movie. Although the information about global warming was depressing; Al Gore did a good job of leaving you with hope that if we make some changes we can reverse the effects of global warming. I live in Colorado and every time we go into the mountains we see the effects of global warming first hand. The pine trees are all turning brown and dying because our winters no longer get cold enough to kill off the larvae. This is a problem that all of North America is experiencing according to a recent article by the BBC.

As much as I preach money management, there are things that we must spend money on. I firmly believe that spending money on alternative energy, more fuel-efficient cars, recycling, and other items that will help stop and perhaps reverse global warming is very necessary. We don't all have the money to make the changes immediately, but if we start making small changes now, eventually they'll all add up. This is just another reason why it's important to manage our money; so that we have money to spend on the important things.

Responsible Spending Habits Slow Economic Recovery

Sarah Lockyer recently penned an article in Nations Restaurant News about decreased spending by consumers due to fears of unemployment. The article is based on research by Technomic Inc. which indicates that an economic turnaround will take longer because consumer spending is slower. From the article:

"The current broad unemployment rate, which includes not only those who have lost their jobs, but also workers who are underemployed or discouraged, has reached 15.8 percent and is rising, according to a July Technomic report from the firm’s consulting economist, Arjun Chakravarti. The prolonged climb of unemployment in the United States has not only affected the spending habits of those without jobs, but also has changed the spending habits of those who remain employed “by spreading psychological uncertainty across all workers in the economy,” Chakravarti said".

Although it would be nice if the economy would recover quicker, it will come back stronger and more stable if everyone increases their savings rate. I know that economists would be happy with a quick turnaround, but I for one am pleased to hear that people are developing more responsible spending habits.