My six-year-old is kind of like the country Zimbabwe, where you can pay your medical bills with three goats. He sees the world in terms of gum. “Dad,” he’ll ask, “if we sold your car, how many packs of Big League Chew could we buy?”
Thing is, our economy isn’t likely to start using gum as currency anytime soon. I need to talk to him about money, and show him the value of a dollar. But how?
I recently heard three great ideas from Larry Rosenthal, ING Retirement Coach, each for the various phases of childhood.
Phase One: The Bank of Dad
I told Larry about my six-year-old, and he recommended this. You give your kid an allowance, say $10 a month. Then sit down with a spreadsheet or ledger and show how each month some percentage of the $10 goes to charity, some into savings, and the rest can be spent–on gum, or whatever the kid wants. Then, when the next month rolls around, you give interest on the savings column. Meanwhile, my son can research charities and make a donation. Pretty sure he’ll pick Naked Clowns. (Yes, it’s a real charity. Google it.)
Phase Two: Investment Account
When you feel they’ve adequately learned the value of a dollar–when they’re “not going to blow all their money on SweeTarts next weekend,” Larry said–they’re ready to get a real investment account. Larry told me this isn’t an age thing; some kids are ready at 8, others take a while longer. With that account, have them buy a few different shares, to see how the shares behave. Some pay dividends but some don’t, and some are volatile but others are stable.
Phase Three: Credit Card
Later, maybe in the teenage years, it’s time to open a credit card in your kid’s name. Larry said to set a $500 limit and have it co-signed by mom and dad. If your kid buys something and then doesn’t pay the card off in its entirety, this teaches a valuable lesson: how interest can work against you.
So there you have it. With Larry’s help, I’m prepared to have the talk. I think my son’s ready for the Bank of Dad, but probably not the investment account, unless I want to own a billion shares of Hubba Bubba.