The Apple Doesn't Fall Far From the Tree: Teaching Kids to Handle Money

by Michelle M. Haas-Dosher

Useful resources When home isn't enough

Raising teens can get costly, quickly. But there is a way to get through the teenage years without fighting about money, says Dr. John Whitcomb, author of "The Sink or Swim Money Program."

His book helps parents teach kids to be financially responsible—and stay sane while doing it. The Home & Family Finance Resource Center interviewed Whitcomb, who also is the medical director of emergency services at St. Luke's Medical Center, in Milwaukee, about his book. And we include feedback that readers contributed in the past few months to this Web site's "What's Your Story?" feature.

Whitcomb says that instead of dreading the teenage years, you can have fun with your teens. His book gives you a tool to allow kids to recognize that they're being acknowledged, allowed, and empowered to be mature and make their own decisions.

"The intent is for you and your kids to work together so they can learn good habits that in the long run will save them," Whitcomb says.

• What is the right age to start teaching kids to be financially responsible?


• You ask parents to make up a contract to sign with their kids. Why is having a contract important?


• How does giving kids a debit card and/or a checkbook help them learn to be financially responsible?


• What do you do when they run out of money?


• Would you give them a loan?


• What if teens follow the contract, follow the rules, and don't beg for extra money. Should you reward them?


• What about savings and giving to charity?


• What financial problems or discrepancies could teens encounter while on this budget?


• How did you encourage your children to save for college?


• Can any household, regardless of income, use this program?


• What inspired you to come up with this program?


• What is the most important thing parents can do to teach children to be financially responsible?



What is the right age to start teaching kids to be financially responsible?
It's lifelong learning, Whitcomb says, but teenagers are different, they're essentially at the developmental stage of learning to practice independent thinking. An average age to start this curriculum would be eighth grade. Kids do it at different ages. "Some children are ready to start learning about finances at age 10, and some are still pretty timid at age 16," says Whitcomb. "It depends on the personality of your child.

"If you start them with the right attitudes when they're young, they'll learn better from it later."

A minimum wage job allows teens to contribute to a Roth IRA.

Linda, from Missouri, says that when her daughter learned to print her name at age six, she opened a children's saving account for her at her local credit union. "I began to pay her a $10 monthly allowance, by check," says Linda. "Each month she would take her 'paycheck' to the credit union, carefully endorse the back, and place half of it in her savings account. The rest was her 'free' money for that month.

"Her allowance has increased to $50 per month now that she's 12 years old, and she still has her savings account, as well as two CDs [certificate of deposit/share certificates], which she plans to roll into a money market account. She's learned to budget her 'free' money and spend it wisely, knowing she doesn't get any more until the next month."




You ask parents to make up a contract to sign with their kids. Why is having a contract important?
"The idea of the contracts started with a safe-driving contract," Whitcomb says, "which focuses on giving a graduated step-by-step increase in privilege and responsibility. A clothing contract is the same idea."

You have a contract so you can refer back to it, Whitcomb says. It's very easy to see who will pay for what. "For example, when your child comes to you and says 'I need your help going to the prom,' you can say, 'Remember we signed this agreement and you agreed to use your money for proms? We budgeted for it.' "




How does giving kids a debit card and/or a checkbook help them learn to be financially responsible?
"Plastic is all around you and you have to learn how to use it somewhere," Whitcomb says.

It's the teen's responsibility to keep track of his or her money.

"Behind plastic, there's an account with real money in it. If kids don't learn that they're accountable for that money, and that there's a limit to that money, they're going to think of a credit card as a renewable resource—'Every time I use it, mom and dad should pay it off,' " Whitcomb says.

The same is true of a checkbook, according to Whitcomb. "It's just a different tool.

Phillip, of Illinois, says, "When I got a credit card, my parents had me put every charge in my checkbook as if it were a check. When I had no money left in the checkbook, then I was not able to use the credit card. My parents did a good job of teaching me about money. I am happy to say I am looking at getting a house now and have $50,000 for a down payment."




What do you do when they run out of money?
This is one of the keys to the whole idea, Whitcomb says. "The reason you write a contract is to say when they run out of money, part of the deal is, they don't come begging for more. The flip side is, it's all theirs and they don't have to beg for it. It's reliably there and the leftovers are theirs too."




Would you give them a loan?
"No," Whitcomb says. "But most parents would say, 'oh sure' and forget they ever loaned it to them.

"The whole point is to teach responsibility for managing your own affairs. And part of that is remembering and taking responsibility. It's the teen's responsibility to keep track of his or her money."




What if teens follow the contract, follow the rules, and don't beg for extra money. Should you reward them?
"You can't be a jerk forever," Whitcomb says. "You love your kids, you're proud of them succeeding, and you see them struggling to make it work. If you see that they aren't quite making it, there are ways of sort of helping them out.

"In our family, our budget was a little bit lean. But, we helped them out by giving them rewards for good grades."




What about savings and giving to charity?
"In our family, that's part of our culture—not every family is the same," Whitcomb says. "It doesn't matter what you're donating to. It could be faith-based, for environmental causes, or volunteering for Habitat for Humanity. No matter what the cause, you're not going to teach those values unless you've demonstrated, practiced, and showed your children how to do it."

You have a contract so you can refer back to it.

"We have four kids, ages nine and younger, all of whom we give an allowance of $2 a week," says Monica, a reader from Minnesota. "They're required to give 25 cents to the church offering on Sundays. They can then choose to save 75 cents or $1, which goes into their piggy bank. The remaining money goes to their wallets. However, if they see something in the store that they think they want (and we feel is a frivolous waste of money), we will go home and have them think about it for a few days to see if they really want to spend their money on it."

Monica writes, "Since we are letting our kids know that church comes first, then savings, [then spending], we are hopeful that this will carry over into the teenage years and into adulthood."




What problems or discrepancies could teens encounter while on this budget?
"Loss or theft," Whitcomb says. "If your kids are going on a school trip and all of their clothes are stolen, now what do they do? You're kind of the insurance policy for your kids. If they get in trouble, you'll fish them out. It's unrealistic to think they'd have the reserves to save them from that.

"Toiletries are another issue," says Whitcomb. "For instance, we buy Colgate toothpaste and Suave shampoo. If my kids want a $20 bottle of shampoo from the hairdresser—you know, that stuff sitting on the counter for $12 an ounce, the stuff you see little pieces of gold in when you look at it—that's up to them, I won't buy that."




How did you encourage your children to save for college?
If they work, they have to save half the money from their paycheck for college, Whitcomb says. "Even though a minimum wage job doesn't pay much, it does give them earned income, which allows them to contribute to a Roth IRA [individual retirement account]. Since they were young, for every dollar my kids earned, I also tried to contribute to their savings."

All those habits together create a lifestyle that saves wealth and allows you to generate wealth.

"My parents taught me about money by providing an allowance, and later stopping the allowance to have me earn my own money through babysitting and part-time jobs," says Bobbi, from Virginia. "I'm using some of the same ideas with my 12-year-old son. I pay him an allowance, but he must put a portion away in savings, for church donation, and for his activities. I have never made a habit of bailing him out on any purchase. He either has the money or he doesn't. I've modernized a bit by talking to him about investments and showing him the statements from his mutual fund, which will eventually be used for his education."



Can any household, regardless of income, use this program?
Yes. Whitcomb talks about a single mother of three children who used the program. Her children had the same amount of money in their budget as Whitcomb's children had in theirs.




What inspired you to come up with this program?
"I was put on this program in eighth grade through high school," Whitcomb says. "My parents were missionaries in India and I was in boarding school. I didn't even think about it until I took my own son shopping and he asked me for a $180 pair of tennis shoes—I just about popped a cork.

"As long as it's my money, he's happy to spend it. Behavior and consequences have to be linked to each other. If it's my money, there's no link. If it's his money, then it's linked."




What is the most important thing parents can do to teach children to be financially responsible?
"That's why I wrote this book," Whitcomb says. "The most important thing is to recognize that kids can't learn [everything] from a blackboard —they have to learn from experience. It's families where you learn emotional ideas and create emotional memories. And in the context of loving parents, the only way for them to learn from their own experiences is to let them manage their own money.

"You have to trust them to make their own mistakes and learn from the consequences," Whitcomb says.

"I learned to manage my money by listening to my mom complain about all of her problems," says Markita, from Ohio. "I try to avoid the mistakes she made. I spend less and save more, and make some serious decisions about what things are necessity and luxury. I budget, bargain shop, and use coupons whenever I can. One more thing, I stopped eating out so much—it's a killer."

Whitcomb says, "It's not just turning off the electricity, not just polishing your shoes, not just packing a lunch. It's all those habits together that create a lifestyle that saves wealth and allows you to generate wealth."




Useful resources

"The Sink or Swim Money Program," by Dr. John E. Whitcomb, Viking, 2000, also published as "Capitate Your Kids" Whitcomb's "The Sink or Swim Money Method" Whitcomb's contracts "Dollars & Sense for Kids," by Janet Bodnar, Kiplinger's Washington Editors Inc., 1999 Googolplex: The CU Guide for Student Moneymakers National Endowment for Financial Education Related "Home & Family Resource Center" articles: What Experts Say About Allowances for Children Keep Your Checkbook Up-to-Date Demystifying Debit Cards




When home isn't enough

Students across the nation are flunking personal finance literacy exams. Why? "Most parents aren't teaching their children about money," says Philip Heckman, CUNA's director of youth outreach. "Except by example, which in many cases, isn't the best. That's why there's a need for formal instruction." The National Endowment for Financial Education® devised the NEFE High School Financial Planning Program® (HSFPP) as a public service to improve the financial literacy of America's youth. The free HSFPP curriculum consists of six units that integrate easily into a number of existing high-school courses, such as math, social studies, economics, and consumer or life science. "The program is a tool for introducing teenagers to the basics of personal finance," says Heckman. "It provides them with the ability to manage their money and their futures through goal setting, budgeting, and saving." Interested teachers can find out more about the program on NEFE's Web site. HSFPP materials cover the impact of career and work on earnings potential, spending and saving money, using and managing credit effectively, protecting assets, and the time value of money. Students also learn how to develop their own personal spending and savings plans. NEFE offers the HSFPP in partnership with the United States Department of Agriculture-Cooperative State Research, Education, and Extension Service, participating Land-Grant University Cooperative Extension Services, and CUNA. To date, nearly two million students in all 50 states have participated in the program.




Published April 15, 2002




Printed Sunday, November 23, 2008


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