Money Counts

By Rebecca Winters

The turkey isn't even on the table yet and already prime-time TV is stuffed with toy ads, malls are bursting with shoppers and the kids are on their third draft of Santa wish lists. With the holidays comes lots of joy for many parents but also the stress of dealing with children whipped to a materialistic frenzy. Hands extended and wish lists perfected, they seem to have no sense of what it costs Mom and Dad (or Santa) to deliver the Nintendo games, Barbies, Air Jordans and stereo systems that help make this time of year so exciting.

"The holidays are brutal," says Flo Mondanaro, a third-grade teacher in Wappingers Falls, N.Y., who is trying to curb an expensive Beanie Baby craze in her classroom. "But the issue of kids' understanding the value of a dollar comes up year round."

Parents and children regularly wrestle with challenges like setting an allowance, learning to save, working after-school jobs and weighing expensive purchases. The goals are to make both the family's day-to-day life easier and the child's financial future more stable. "Every parent hopes they'll raise a money-savvy kid, who'll grow up to be a financially secure adult," says financial planner Peg Eddy. The trick, say Eddy and most experts, is letting kids learn by having a little money of their own.

The Tidler family in Denver found the best way to teach about money was to let their kids earn some. Ryan, 17, has been mowing lawns since he was 8, and now owns his own equipment. He has managed to stash away $7,800 at his parents' urging. In addition to saving that amount, Ryan was able to splurge on a dirt bike and an impressive sound system. He's eyeing a Ferrari, despite his father's advice that a car is a bad investment. Ryan shrugs off the idea that he might resent having to make his own money when so many other kids are given cash freely by their parents. "Some kids have a lot of stuff," he says. "Some kids don't have much."

Ryan's attitude is 180[degrees] from the "Everybody has one" line so many kids pull on guilt-stricken parents at this time of year. And it reflects an appreciation of just what a dollar is worth to Ryan, which is about 5% of a lawn.

It's an appreciation that has become increasingly vital for kids, says David Brady, manager of the Stein Roe Young Investor Fund, a mutual fund geared toward children and young adults. "With the future of the social security system in doubt and with pension plans dying out as a concept, these young people will have much more responsibility for their financial future than prior generations," Brady says. "They need to have good fiscal sense."

This doesn't mean raising little J.P. Morgans, Brady cautions. "I don't want kids to become investment geeks," he says. "They shouldn't be consumed with money." But they should know about it and care about it, Brady says.

Parents should start explaining the basics early, Brady believes, of saving and investing. Brady's two daughters, at ages 14 and 8, are investors in his fund. "Some days they're high-fiving me; and some days they're saying, 'Dad, what are you doing with our money?' But they understand the process; they know how the money is growing and why, because I talk to them about it."

Taking the time to talk to your kids about money is the best way to head off trouble. "Families should sit down and discuss this before consumer messages win out in a kid's mind," planner Peg Eddy says. "That means early, probably around age four or five." Parents should explain to young children that there is a house to live in and toys to play with because Mommy and Daddy work and save money. As children get older, parents may discuss more specific issues, like saving for education, giving money to charity and budgeting for holiday or back-to-school spending.

But don't get too specific."Tell your kids your salary, and in 24 hours it will be all over the neighborhood," Eddy warns. You can communicate financial principles by talking to your kids, but count on setting a good example too.

Businesswoman Dorothy Pitman Hughes brought a spirit of financial independence when she moved to New York City from a home she shared with 10 siblings in Lumpkin, Ga., 30 years ago. By starting her own office-supplies business, Hughes taught her three daughters the principle of entrepreneurship she had found indispensable growing up black in a segregated community. "We ran our own stores, our own schools," Hughes says. "I wanted my daughters to understand that self-sufficiency."

Now two of Hughes' grown children work in her business, which is itself embarking on an IPO aimed at young investors. Hughes has taken her message of entrepreneurship outside the family, offering seminars at schools and encouraging local children to buy into her business at $1 a share. "The most financial education most of these kids will ever get anywhere else is a half-hour field trip to the stock exchange in 12th grade," Hughes says. "I'm trying to help them understand that even a small investment is better than nothing."

Educational programs sponsored by community leaders like Hughes can go a long way toward teaching kids the basics of money management. And other experts like Junior Achievement, the Stein Roe Young Investor Fund and Merrill Lynch offer parents plenty of help (see accompanying box). But sometimes a kid just has to learn the hard way.

Giselle Lopez, 17, of New York City, racked up $2,000 in debt on her first credit card. Her parents refused to pay, so Giselle got a job to pay it off slowly herself. "Now, every time I use it, I know that it comes from my own pocket," Giselle says. "That gives me a sense of responsibility for my actions."

Like Giselle, Ryan's 13-year-old sister Danni has created guidelines for her own spending. Calling herself "a squirrel," Danni won't touch the $1,700 she has earned baby-sitting and pet-sitting until she's crazy about something...like the $140 Doc Martens she wanted last Christmas. They were cool, but Danni felt they cost too much. Lucky for her, her mother and grandmother split the cost.

Different kids will have different styles when it comes to money, but teaching them how to use it doesn't have to mean imposing rigid rules. When children like Ryan, Giselle and Danni have their own cash to consider, the good news is that they tend to impose those rules themselves.

--With reporting by William Dowell/New York and Maureen Harrington/Denver

With reporting by William Dowell/New York and Maureen Harrington/Denver