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Help Kids Brush Up on Finances

When young people know the financial planning drill, they make better choices.

April 21, 2014
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The only thing fun about losing a tooth, as I recall, was the subsequent visit from the Tooth Fairy.

The Tooth Fairy did not venture into my bedroom to remove a tooth from under my pillow. She feared waking me.

Instead, my Tooth Fairy visited the kitchen! I placed my tooth in a glass of water left on the windowsill overnight. She would fly in through the window, remove the tooth, dump the water down the drain, and I would wake up to find money in the glass—typically 50 to 75 cents, but with the occasional dollar.

How times have changed!

“Tooth Fairy spending is sky rocketing and shows no signs of slowing down,” notes a Visa Inc. survey. The survey indicates American children received an average of $3.70 per lost tooth in 2013, 23% more than the $3 per lost tooth in 2012.

The increase from 2011 takes an even bigger bite: At that time children typically found $2.60 under their pillows, a 42% difference in remuneration.

Further revelations:

  • The Tooth Fairy leaves $50 for a lucky 2% of respondents;
  • Nationally, households headed by younger parents have the highest average rate of return by the Tooth Fairy at nearly $5 per tooth;
  • Kids from the Midwest are most often shortchanged, with funds averaging $3.30, while kids in the Northeast fare best at $4.10 per tooth.

These statistics are fun, but there’s an important takeaway: “Parents should take this opportunity to talk saving and smart money habits with their kids and have the same talk with a perhaps overly generous Tooth Fairy.”

Research this week focuses on youth and money, and the importance of financial literacy discussions from an early age.

Talk to kids about finances

Younger American families are particularly vulnerable to recession, according to the Federal Reserve Bank of St. Louis [pdf], and firm financial footings should be planted in early life to help preserve assets in troubling times.

This resource suggests three ways “to get kids to start saving and building financial know-how”:

  • Access through schools to real savings accounts managed by students: “Saving is a pre-condition of financial know-how, not the result.”
  • National standards for a “longer-term child savings” product such as a “KidsRoth” account.
  • “Early Pell” accounts initiated at kindergarten to reduce Pell Grants at college age.

The sound conclusion: “While is has always been smart to start early to achieve financial success, for younger generations it may now be a necessity.”

It’s Time to Talk to Your Kids About Your Finances,” observes foxbusiness.com.

Results from a T. Rowe Price survey show “Close to 75% of survey respondents say they regularly have conversations with their kids about money, but the focus is on spending—not the family’s current financial situation.”

Children are willing to listen: 34% of child respondents say they want to know how financial institutions and credit cards work, 29% want to learn how to manage money, and 27% wonder about inflation.

Kids follow money handling examples set by their parents—and half or fewer parents have strong financial habits. “Being financially responsible on a daily basis will be more impactful than having a conversation about money.”

Seventy-one percent of adults learned the importance of saving from their own parents, observes a Wells Fargo news release. “Despite this, only a third (36%) of today’s parents report discussing the importance of saving… 64% indicating they talk about savings with their kids less than weekly or never.”

It’s not easy: “Nearly half of Americans say the most challenging topic to discuss with others is personal finances (44%), whereas death (38%), politics (35%), religion (32%), taxes (21%), and personal health (20%) rank as less difficult.”

Teens bite into financial planning

Teens today are largely optimistic about their finances, but some concerns persist, according to Junior Achievement’s “2013 Teens and Personal Finance Survey.”

“The percentage of teens who say they will be able to support themselves between ages 25-27, without parental assistance, has doubled over the last two years, from 12% to 25%. However, the percentage of teens who feel they will be financially able to support themselves between the ages of 18 and 24 has fallen from 75% in 2011 to 59% in 2013.”

This report emphasizes the importance of money know-how. For teens, this is particularly important with student loan considerations.

“A majority of teens (52%) believe students are borrowing too much money for college, and nearly two-thirds (64%) have discussed the topic with their parents. Yet nearly half of teens indicate they don’t know how much they will need to borrow to pay for college.”

Many kids are proactive with college savings, and make financial tradeoffs, according to the College Savings Foundation [pdf]. Tradeoffs include part-time college attendance and working.

“Sophomores, juniors, and seniors across the country are proactive about saving, with 74% planning to save money for college or post-secondary school. Over half of them, 53%, have already gotten a job to earn money for college, compared to 46% among last year’s students.”

Students look for help from their extended family and grandparents, as 45.5% will receive financial support and “41% expect to get over $5,000 toward higher education.”

Many grandparents are stepping up, according to Investment News.

“About two-thirds of grandparents whose grandkids plan to attend college in the future are chipping in financially to support their education… This compares to 39% who are contributing to the costs of grandchildren now in college.”

Further, around 40% of grandparents have deemed 529 plans their preferred savings product due to tax benefits.

Financial planning lessons, then, would seem to begin with the tooth fairy.

How can you help your members cut their teeth on these important financial literacy issues?

LORA BRAY is a research librarian at CUNA.

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