Expert: Paul Henneman - 10/19/2008

Question
My two children(13 & 14 years old) have a guardian savings account that we contribute to every year, but they never touch so it doesn't teach them how to handle their money. Last fall I opened two checking accounts under my name and gave them each a debit card where I direct deposit their allowance.They have to increase their minimum balance by $10.00 every month. Now,they are also contributing to their savings account.Am I doing the correct thing and if I am what is my next step? I saw in the Internet where they sale stocks for children. Id like to teach them to build some kind of financial portfolio.

Answer
Thank you for your question!
Everyone would have different opinions on how to teach financial responsibility to children. In my opinion (and I have a daughter, so have thought about this a great deal) what you are doing is great. Simply the fact that you are paying attention to this is so much better than most families, and will give them a real financial head start. In general, I personally believe that there are two overall lessons to to teach children, and yours are the perfect age for this:

1. The danger of debt
2. The power of returns over time

The way interest compounds over time, it can either be a great ally if used for investing, or a huge danger if credit is used too much. What kids need to understand is that interest may not add up to too much in the short term, but can be a huge factor in the long term.

Here is a link to an investment calculator, I think that this can have a powerful effect on kids.

http://www.finance.cch.com/sohoApplets/InvestmentReturn.asp

Enter some numbers in there, and show them how money can grow by itself over the years. When you look at 30, 40, or 50 year time frames, it is incredible how small investments can grow.

Other than that, I think that you are doing great and I don't have much to add. Perhaps as they continue to work their way through their teens, it would be beneficial to share with them how you budget the entire family's expenses, learning to build and maintain a budget is another important skill.

I hope that this helps! Please do not hesitate to follow up with me if I can be of any additional service,

Sincerely,
Paul Henneman
President
ValuEngine Inc
www.ValuEngine.com