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Start teaching children about the importance of saving early

In a previous column I shared how my husband and I have introduced our children to money management concepts, including how to save as well as how to shop. Other key issues are teaching young people about banks and debit/credit cards.

We opened savings accounts for each of our children when they were very small. Each had a piggy bank for the “save” portion of their monthly allowance. About once a year, we made a big production of opening the piggy bank, counting the money and then taking it to the bank.

We felt it was important for the children to deposit the money themselves; they rolled the coins (back before coin-counting machines!) and helped fill out the deposit slip.

There was an aura of intrigue and excitement when they visited the bank. It was a big deal! Later, the monthly statement arrived and they were excited to see the account grow. This helped encourage them to keep saving, including portions of monetary gifts from relatives and friends on birthdays. They even seemed to compete to see how could grow their accounts faster. Saving money was a cool thing to do!

This account was theirs. They could spend the money on “big ticket” items. For example, our son wanted to attend the 2005 Boy Scout Jamboree and it was going to cost a large amount of money. We told him we would pay two-thirds if he would pay the other third.

He wondered how he would accumulate that much money without depleting his account; he asked for money for his birthday and Christmas. While he was pitiful at Christmas when he had no tangible gifts, he was very happy the next August to get to attend the Jamboree by using some of his account plus gifts. He invested in a memory.

As the oldest approached 15, we started a checking account for him. Ultimately, each of our children had a checking account with parents as co-signers. As college professors working with college students, we had already learned that most college students do not have checkbooks nor are they interested in writing checks. So even though we received the “starter checks” for the account, we focused on learning how to effectively use the debit card.

We could have done a better job teaching debit card usage!

We began each account with $200 and then I monitored the balance. Occasionally, when the balance approached $50 or so, I would add money to the account. What we did not do well, however, was expect the child to keep a record of transactions so that they could keep track of spending along the way.

Because we did not do that well, I expect they will not be as equipped to do so if/when they actually start writing checks. Of course, with electronic banking today, they may never need to write many checks, so this may be a moot point.

Credit card usage is another “life skill” that needs to be taught.

When our oldest two went to college, we elected not to get them a credit card for their first year. That was a mistake. Although I monitored their checking accounts, occasionally a “big ticket” item would need to be paid and they had no way to do it without contacting me, getting me to transfer money into their checking account and then using their debit card.

The summer after their first college year we got each of them a credit card. An adult (at least 21 years old) had to co-sign. Our children still have their checking accounts and debit cards for day-to-day expenses, but they now have a credit card to use for unexpected expenses.

For example, one of our children had to go to the emergency room and was able to use her credit card for the co-pay and later for her medications. Having the credit card was helpful as this happened in the middle of the night and she might not have had enough money in her checking account at the time to cover these expenses.

The only rule we have about credit card use is that they have to text me when they use it and, if possible, do so in advance.

Our children have learned the importance of saving and how to appropriately use debit and credit cards. We hope teaching our children how to responsibly manage their money will result in adults who are smart money managers.

This is one in a series of columns by University of Mary Washington College of Business faculty on various aspects of finance andeconomics as they affect our readers. Lynne Richardson is dean and professor of marketing at the University of Mary Washington College of Business.

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