Business | Investment
Financial prudence can be child's play
Children can be taught money management through simple acts of philanthropy.
- By Pamela Ryckman, Financial Times
- Published: 23:32 September 26, 2008
Andrea Towey thought birthday parties had become excessive and overwhelming for parents and children. So when Urban Baby, a web-based parenting forum, sent her an e-mail describing ECHOage, an online party-planning tool that integrates philanthropy with gift-giving to the birthday child, she jumped at the chance to minimise the stress of her nine-year-old's celebration.
ECHOage would e-mail invitations to her daughter's friends, collect responses and relevant information such as allergies and parents' contact information, and send 'thank you' notes. Towey saw a chance to teach her daughter Hannah to value her own gifts and use her good fortune to help others.
Instead of bringing a present to the party, ECHOage asks guests to donate between $10 and $30, the average amount spent on children's birthday gifts.
The money is pooled and split; half goes to the child for the purchase of one big, memorable gift and half is donated to one of seven charities ECHOage sponsors.
Hannah was initially hesitant, but embraced the idea when she realised that instead of many smaller gifts, she could get the guitar she'd long been coveting while also helping an environmental cause she believes in.
"I'm interested in teaching my children how to give back," says Towey, a children's musician who lives in Rowayton, Connecticut. "Everyone spends at least $20 for a gift anyway, and we and the kids have everything we need."
Benefits
In addition to underscoring ethics and ideals, parents have discovered that teaching philanthropy when children are young has an unexpected bonus: increased financial intelligence.
By exploiting events such as parties, parents can initiate a dialogue about priorities and money management.
"Money is something children are not exposed to until they're older - how it's earned, raised, managed, given away. But with ECHOage the child can go online and see what it's like to collect money, watch it grow," says Debbie Zinman, ECHOage co-founder.
"We are not the Scrooge of birthday parties. We're building an understanding that your resources can be used in different ways."
Adults at all socio-economic levels find it hard to discuss money with their children. Struggling parents may not want to burden their children with debts and worries, while parents of means may fear that revealing their wealth will discourage children from hard work.
Many adults were raised in homes where finances, like sex, were considered private. But experts say children are great observers of the conscious and unconscious cues their parents send.
"When children ask: 'Are we rich?', it's only for so long that you can say: 'Yes, we have each other; we have our health.' Around age eight they want the bottom line," says Susan Beacham, co-founder and chief executive of Money Savvy Generation, which produces financial literacy tools and curricula for children.
Given their widespread use of the internet, children have easy access to information about their parents that was unavailable to previous generations. Jon Gallo, a lawyer who chairs the family wealth practice group at Greenberg Glusker, a Los Angeles law firm.
Ignorance
The Financially Intelligent Parent and Silver Spoon Kids is amazed when affluent clients say their children are oblivious to the family's good fortune. "We say: 'You live in a $10 million house and your kids can Google your name. Do you really believe they and their friends have no knowledge of your financial situation?'"
As a result, many financial advisers exhort parents to communicate the pitfalls and privileges of wealth early on. "It's not the know-ledge of wealth that robs children of drive. It's the example their parents have set," Beacham says.
Philanthropy can be an easy and effective way to begin the conversation.
"Philanthropy in the family is an incubator of skills that carry over into the rest of life. Children learn that giving back with their time and treasure is part of the family's ethos and a fulfilling part of life, and they see a model for how money is used and invested," says Charles Collier, senior philanthropic adviser at Harvard University and author of Wealth in Families.
For children to truly understand the implications of managing funds and the impact of charitable giving, parents must do more than write cheques. They need to find hands-on opportunities for instruction.
Controlling impulses
Beacham says: "You're teaching children how to stop, think and control their impulses as they accrue money to save or donate."
Too many parents make the mistake of lecturing on fiscal responsibility while bestowing a credit or debit card.
"You have to start kids with coin and currency so they can understand the boundaries. They can see when the money's gone. Plastic is too abstract; you can't divide it or make choices with it," Beacham says.
"You would never wait until age 17 to teach children how to brush their teeth. So why wait until they go to college to teach money management?"
Gallo, who is also co-founder of The Gallo Institute, a family wealth consulting service, and co-author of The Financially Intelligent Parent and Silver Spoon Kids, says organised giving can be an integral part of parents' overall work to instill astute financial behaviour.
Money Savvy Generation sells on its website a transparent piggy bank with four slots, for Save, Spend, Donate and Invest. The visible accumulation of coins provides evidence of growing funds, allowing children to absorb and retain the concepts of saving and goal-setting.
Barbara Dillbeck, The League's curriculum director, says that linking philanthropy and money management to real experiences leads children to be-come accountable for their own financial well-being. This is important for them personally, but also has implications for society.
"If a child grows into a financially literate, stable adult who understands his money choices, he will think critically about what our nation is doing with its resources."
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