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Category: Family Finances

Strategies for helping families save and invest for their future.



Holiday Fun!

Holiday Recovery is at Hand!

So you had a great holiday but spent way too much and ate too much too? It’s not too late to get back in shape financially and physically!

Make a Budget First…

Without knowing the resources you will have to pay off your holiday expenses, you can’t create a realistic repayment plan. Write down the income you will have for the next 6 months. Now make a list of your recurring monthly expenses. Swear not to make any more discretionary purchases until your holiday debt is paid off! Use the remainder from your monthly payments to begin paying down your holiday expenses.

Pay off Credit Cards ASAP!

According to The Balance, the average credit card interest rate is now 21.25%! In February 2019, consumer credit increased at a seasonally adjusted annual rate of 3-1/4 percent. Revolving credit increased at an annual rate of 1/4 percent, while non-revolving credit increased at an annual rate of 41/2 percent.

This means people are borrowing more and paying more to borrow!

Interest Rates are Going Up from 15% in 2018

Credit Card Alert

Store credit cards have the highest average interest rates.

  • The average APR on credit card purchases is 21.25%.
  • Store credit cards have the highest average interest rate.
  • Business credit cards have the lowest average interest rate.
  • Cash-back credit cards have the lowest average interest rate among consumer cards.

Debt Repayment Blues

If you borrowed $1,000 to pay for a “happy” holiday, you may find yourself singing the blues when payment comes due. And, using the current credit card average interest rate of 21.25% and if you were able to repay $40 per month, it would take 76 months to pay-off the $1,621 you borrowed. Yes, incredibly you’re paying 62% more than you borrowed! Use this Debt Repayment Calculator to calculate your own repayment schedule.

Debt Repayment Calcuation
Debt Repayment Calculator

Next Year…

Save NOW for Next Year!

Beware Home Warranties

Beware Home Warranties

What is a Home Warranty?

Not Insurance

A Home Warranty is not your homeowners insurance. A Home Warranty is a contract designed to protect you from unexpected costly repairs or replacement of appliances in your home. The contract is generally for a year. The monthly premium ranges from $40 to $70 per month and depends on which appliances and systems are included in the contract. There is also a deductible of $75 to $100 for each repairman visit to repair or replace an appliance.

What’s The Pitch?

This is the pitch from Home Warranty of America (HWA): “Imagine you’ve been using that lovely new refrigerator you purchased last year and then suddenly, as soon as the manufacturer’s warranty expires, it dies on you. If you don’t have a home warranty, it may cost you hundreds or even thousands of dollars to fix or replace it.

If you have a home warranty with HWA, you can file a claim online or with our customer service team and we’ll take care of the rest. Once the claim is received, we’ll connect you with an approved service provider to assess the problem and your appliance or system will be fixed as quickly as possible.”

What Should I Do?

What’s the Reality?

The reality is that they are a for-profit company that needs to show a profit. If you need too many repairs or your repairs are too expensive, they will not renew your contract or they will find reasons not to make the repairs.

Read the Fine Print! Gotcha!

Here’s what happened to me with my Sears Home Warranty. I had an old but in good condition Subzero refrigerator. Some of the vegetables in the vegetable drawers were freezing. I filed a Service Request online which was approved by a Sears representative. Then the first glitch occurred: Sears could not find a repairman in my area who could repair a Subzero! They said I would have to find a repairman, which I did in a town 50 miles away.

The repairman said the refrigerator needed a heater component specifically designed to keep the drawers from getting too cold. There was no other solution. Sears approved the visit by the repairman but then reneged and refused to pay for the visit or the $250 part stating it was a manufacturing defect that the manufacturer should repair. Since the fridge was long since out of warranty, I was out of luck.

Be Prepared to Find Your Own Repairman in Rural Areas!

Another Chance!

Shortly thereafter, the blower on my stove top started making a loud noise. I contacted Sears with the Thermador model number and was told it was not covered. Why, because the blower was UNDER the stove top in a cabinet not over top of it! Specifically they stated:

Thank you for contacting us.

Upon review of your agreement, we cover a self-contained range exhaust unit located above the range. Please be advised there may be a cap limit on your appliance as it is classified as an ultra-premium appliance.

Refer to  IV. General Exclusions and Limitations, Item 7 wherein it states:7. This Agreement does not cover any of the following: repair or replacement of systems, appliances or components classified by the manufacturer as commercial-grade. In no event shall we be liable for claims in excess of $1,000 in the aggregate, per agreement term, per commercial-like or ultra-premium appliance including, without limitation, brand names such as Bosch, Dacor, Delfield, Fisher & Paykel, GE Monogram Series, Jenn–Air, Meile, Sub-Zero, Thermador or Viking (individual trademarks are owned by the brand name company).

Upon further review of the information you’ve provided, the model number shows the cook top is independent. If the cook top is independent it is not addressed by your warranty. Please refer to your Agreement, Section II. DEFINITION OF ITEMS, 1. Kitchen/Laundry Appliances, paragraph 2 wherein it states: Examples of Items/Conditions Not Covered: Automatic deodorizers; buckets; commercial units; damage to clothing; doors; door cables; door glass; door seals (other than for front load washers); drawers; drip pans; exhaust fan not solely for venting range/cooktop fumes; filters and screens; food spoilage; standalone or self-contained icemakers and ice/water dispensers; external water supply lines; independent telescoping range exhaust; interior lining; internal shelves; knobs and handles; light bulbs and fixtures; lock and key assemblies; panels and/or cabinetry; racks; removable minitubs; rollers other than clothes dryer drum rollers; rooftop exhaust units; rotisseries and probes; secondary units; shelves; springs; stand-alone freezers; structural components; timers and clocks (oven/range clock-timers are excluded unless failure prohibits normal cooking function); trays; dishwasher and trash compactor tubs; venting; conditions of water flow restriction due to scale, minerals and other deposits. We hope this information was helpful. Sincerely, Marcos Customer Support Services

Cancel Contract

That was enough for me and I cancelled the contract. But be aware before you cancel that your home warranty contract is for a year. If you cancel before the end of your contract term (12 months), you will have to refund the cost of any repairs paid for by your home warranty company during your year long contract period! So if you had a plumbing repair that cost $270 and they paid $170 (Remember you have to pay a deductible.) you will have to refund the $170 to the home warranty company if you cancel before year end–even though the repair was made perhaps several months before cancellation.

Little Wiggle Room in Home Warranties!

Post Script

There are times when a ‘fair’ home warranty contract can be worthwhile. If you travel frequently or have a rental, a home warranty can be useful! Here is a link to the best home warranties of 2019. Be thorough in your research and read the fine print carefully!

Your Money–Mattress, Bank or Market?

Your Money–Mattress, Bank or Market?

What is Dead Money?

What Should You Do With Your Money?

This is a question on the minds of many Americans as they watch the stock market rise and fall. What should you do with your money? To set the stage for future discussions, let’s take a minute to make sure we understand the Time Value of Money, Inflation and the Rule of 72.

Time Value of Money

Many factors contribute to whether the the US Dollar is weak or strong. They include monetary policy, inflation and economic growth. If the Federal Reserve Bank is easing/decreasing interest rates, the Dollar is weakened and deflation generally occurs.

The Figure below show how much $1,000 today would be worth in the future if it were discounted at various rates i.e. 2, 3, 5 and 7 percent. As you can see, in around 70 years at a 7 percent discount rate, your $1,000 would be worthless!

Money Needs to be Invested to Retain Value


Inflation is the constant rise in the price of goods and services over a year, for example. Inflation weakens the Dollar and results in a decrease in the purchasing power of your money.

As prices rise, your Dollar buys fewer goods and services. This loss of purchasing power impacts the general cost of living across the board ultimately leading to a deceleration in our country’s economic growth. Below is a chart that shows the impact of inflation on the price of a cup of coffee over 50 years.

Coffee inflation chart
What Caused a Cup of Coffee to Become so Expensive?

What is the Rule of 72?

In finance, the rule of 72 is a method for estimating the time it takes an investment to DOUBLE. The rule number (e.g., 72) is divided by the interest percentage per period (usually years) to obtain the approximate time required for DOUBLING.

How Does the Rule of 72 Work?

To estimate the number of periods required to DOUBLE an original investment, divide 72 by the expected growth rate/percentage.

For instance, if you were to invest $100 with a compounding interest rate of 9% annually, the rule of 72 divides 72 by 9 to arrive at 8 years for your $100 to DOUBLE to $200. Below are other examples of the rule of 72 and the returns you could expect from your investment.

Interest Rate72/Interest Rate Years to Double
9%72/9%8 Years
6%72/6%12 Years
4%72/4%18 Years
2%72/2%36 Years


In summary, the worst place to keep your money is under your mattress where it will only devalue over time and become dead money. Banks are currently providing very low rates of return, but your money is guaranteed against loss by the US government through the Federal Deposit Insurance Corporation (FDIC).

The US stock market has experienced an average gain of approximately 10 percent since 1980. If you have a long term perspective, it’s a good investment, but losses are not insured by the US government. Real estate can be a good long term investment, but you should consult a local realtor to find the best value for your money.

If you have children and you want to provide them with the benefits of a post secondary education, you should definitely consider a 529 Plan.

But For Lack Of Financial Literacy…

But For Lack Of Financial Literacy…

Children are like tulips blowing in the wind.


  • I could have had a Pell grant.
  • I wouldn’t have financed my car for 7 years instead of 3.
  • I would have waited to get married until I had saved more money.
  • I would have paid my credit cards on time.
  • I would have ‘vacationed’ at home a few times.
  • I would have invested in a 529 Plan for my education.

The list goes on with ‘would’ve’ and ‘should’ve’. What matters is what you do now! Incredibly, the latest economic reports find that the 1.6 TRILLION of Millennial student loan debt is actually exceeded by CREDIT CARD debt! Below are the leading sources of debt for the various generations.

Generation Z (Ages 4-22)Student Loans20%
Millennials (Ages 23-37)Credit Cards25%
Generation X (Ages 38-53)Mortgages30%
Baby Boomers (Ages 54-72)Mortgages28%

It may be getting late for some of the generations above, but not for Generation Z! Now, while they are so impressionable, is the time to model wise money management and ‘conjure up’ opportunities for them to experience saving, borrowing and investing.

Provide Learning Opportunities

Of course, the opportunities you provide must be tailored for their learning development as we saw earlier. When my oldest grandson graduated from high school, I invested $10,000 on his behalf at Charles Schwab. Now that he has completed two years of college and his investment has increased to $12,500, I helped him open his own brokerage account and transferred the profit into his account. To leave it at that would have been to drop the ball, however!

Every Penny Counts!

The next time he came by to visit me, I had him select four stocks in which to invest his profit. I then had him download the Vector Vest investment app I use and taught him how to use it. He was proud to have his own brokerage account and dying to buy some stock! That afforded me the opportunity to teach him how to be a good stock picker! Time will tell, but at least I opened his eyes to the world of investment.

My five year old granddaughter is a different case. Next time I see her, I plan to ask her for a loan–a loan that pays interest!! I’ll let you know if she bites and how much interest she wanted to charge for the $5.00 I hope to borrow…

A budding money management expert!!
Use 80/20 rule to maximize savings!

Use 80/20 rule to maximize savings!

80% Of Results Come From 20% Of Your Efforts

The 80/20 rule was discovered by an Italian engineer named Vilfredo Pareto and is often referred to as the Pareto Principle

But how can the 80/20 rule be applied to improve family fiscal management? Well, if 80 percent of results come from just 20 percent of our efforts, the first step is to prioritize your tasks/activities.

What are your most important tasks not just for the day but for the month? Make a list of them: Paying the bills, making a budget, searching for coupons, finding a part-time job, refinancing the car loan, buying kids’ shoes while on sale, replacing lightbulbs with lower cost led bulbs, finding ride-sharing for after school sports, trying to repair a leaking sink yourself, etc.


After each task write down an estimate of how much time it will take to accomplish. This procedure forces you to identify “bottlenecks” that may have kept you from doing the task earlier. When I follow this procedure in my own life, I am frequently surprised with how little time I think it will take to accomplish ALL the tasks. In fact, it makes me feel more motivated to get started. Why have I been procrastinating so long?

Most Valuable?

Now, ask yourself, which of these activities will be most valuable to my family. Those with the highest value should be done first. But, maybe you can’t complete your most valuable task in one day? Not to worry. Complete as much of your #1 task as you can and move on to #2. Accept that there will be interruptions like fixing lunch, picking your child up from school or doing a load of washing. Use these minutes away to ponder your #1 task.


At the end of the time you have to work on your fiscal management tasks, place a check mark beside the ones you have accomplished. If you only completed one-half of #1, enter “1/2” next to it. Next morning, get up, get the kids off to school and resume working down your PRIORITIZED task list.

Let’s look at an example. From the list of tasks above, which one has the greatest value to your family? If you don’t pay the bills, the water or electricity may be turned off! But if you don’t make a budget or get a part time job, you may not have enough money to pay the bills? If you can’t refinance the car loan, you may lose it and not be able to get to work! What to do first? You may feel so stressed that you can’t make a rationale decision and start cutting coupons to relieve the stress!

Shorts for kids.

Don’t fall into the trap of doing the easiest tasks first. Frequently these easy tasks are pesky but of the least value to your family. Instead, think which completed tasks would be most valuable to your family. If you pay the bills first, you buy time to complete the other tasks. You can then make a budget for the next month, look for a part time job and refinance the car loan.

In this example, the most valuable task probably took the least amount of time—an hour or so to pay the bills. You might say that 20 percent of your efforts produced 80 percent of the results that kept the family solvent for another month!

Are 529 College Saving Plans Good for Your Family?

Are 529 College Saving Plans Good for Your Family?

Student Load Debt Is At Crisis Levels

Student loan debt has now surpassed the alarming sum of 1.5 trillion dollars ($1,500,000,000,000) and is increasing rapidly! This debt load which averages $37,000+ per student is severely impacting not only the lives of the students themselves but also that of the American economy.

Student loan debt by balance amount.

Estimated Post-secondary Costs

What Is A 529 Plan?

A 529 College Savings Plan (529 Plan) is a tax-advantaged savings plan designed to promote saving NOW for future college costs. Eligible costs include those at community colleges and vocational education schools as well as 4-year colleges. 529 Plans are sponsored by state governments, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code. If you use the money invested in a 529 plan for education expenses, the gain in your investment is tax free! The cost to open a 529 Plan account varies between $15 and $25 generally and enrollment can be done online.


What Are My 529 Plan Options?

There are two types of 529 Plans: Prepaid Tuition and Education Saving Plans:

Prepaid Tuition
The Prepaid Tuition option allows a parent to purchase units for future college tuition and fees AT CURRENT PRICES. So, for example, if tuition is $5,000 a year at your preferred college today, you could buy 100 units for $50 each and have your 5-year-old child’s first year tuition completely paid for when he/she reaches age 18 and the tuition is now $10,000 a year—or more!

Know that each year the price per unit is adjusted to reflect the change in tuition prices so start investing in units as early as possible. Also, be aware that not all Prepaid Tuition plans are guaranteed against loss by the FEDERAL government but some 529 Plans are guaranteed by state governments so be sure to check before you invest.

Education savings plans

Education Savings Plans (ESPs) require you to open an investment account. These plans are sponsored by state governments and have preferred providers. For example, in the state of Nevada, SSGA UPromise is a 529 Plan provider but not in Washington State where the only provider is BNY Mellon. You do not, however, have to use BNY Mellon if you are a Washington State resident as most 529 ESPs can be purchased by residents of any state.

Which 529 Plan is best?

State Income Tax Advantages

The advantage to buying a 529 Plan in your own state could be the opportunity to write off part of your investment against your state income taxes. Over 30 states, including the District of Columbia currently offer a state income tax deduction or credit for 529 Plan contributions. Seven states allow a state income tax benefit for contributions to any 529 Plan. They are:

  • Arizona.
  • Arkansas.
  • Kansas.
  • Minnesota.
  • Missouri.
  • Montana.
  • Pennsylvania.

No Guarantee

State governments do not guarantee investments in ESPs. Education savings plan investments in mutual funds and ETFs are not federally guaranteed either, but investments in bank saving accounts via the ESP are generally insured by the FDIC. Recent legislation.

Make your money work for you!

Recent Legislation

Recent federal legislation now also makes K-12 education expenses eligible for 529 ESPs but not Prepaid Tuition plans . Another distinction between Prepaid Tuition and ESPs is the education savings plan’s ability to use proceeds for more than tuition and fees like room and board. You could, for example, have both a prepaid and an education savings plan for your child; the first paying tuition and fees and the latter, room and board.

What Are Expected Returns from 529 Education Savings Plans?

The three-year average returns from state-sponsored Direct to Consumer 529 Education Savings plans have been between 30 and 80 percent! California was the worst state 529 Plan with a 32.04 percent return while Montana was the best with a 87.34 percent return! Please see this link for a comparison of the 1, 3 and 5-year returns by state. .

As of July 2019, the 3-year return for the S&P 500 was 37.12%.


Why Use A 529 Plan If US Stock Market Returns Are Similar?

The primary reason to use the 529 Plan vehicle is that the GAINS are tax free if used for education expenses. If you are simply invested in the US stock market without a 529 Plan, you will have to pay federal income taxes on the gains in your stock portfolio—at your income tax rate!

Average US Saving Account Rates

In comparison, the average savings account rate among U.S. banks has only recently increased to 0.09% annual percentage yield (APY.) .The largest banks only offer 0.01% APY on their standard savings accounts. At that rate, a savings balance of $10,000 would earn just ten cents a year. Clearly savings accounts are not the best way to save for college, but they are a smart way to save for emergencies. Online savings accounts offer a slightly better deal, with interest rates of up to 2.00%.


In Summary…

On average, students with a college degree will earn approximately $1,000,000 more in their lifetime than students who only have a high school diploma. That’s 35% percent or $21,000 less each year than a college graduate.

Between 2000 and 2011 college tuition increased 213 percent and it’s still increasing.

College is only getting more expensive!

In addition, public funding for education has decreased sharply. In 2015-16, appropriations per FTE student were 11% lower in inflation-adjusted dollars than they were a decade earlier and 13% lower than they were 30 years earlier.

BOTTOM LINE—Open a 529 Plan and start saving for your family’s future education expenses NOW! If your children don’t go to college or a vocational school, the 529 Plan benefits can be transferred to you or to another extended family member!

Aren’t Lower Interest Rates good for my Family?

Aren’t Lower Interest Rates good for my Family?

Generally YES!

Lower interest rates mean:

  • Lower credit card interest rates
  • Opportunity to refinance your mortgage
  • Lower home equity lines of credit rates
  • Lower personal loan rates from the bank

When Interest Rates Are Lower, It’s Cheaper To Borrow

Some families may use these lower interest rates to buy a new refrigerator and maybe a new stove to match it while interest rates are low!

The danger is that when interest rates begin to rise, unexpected challenges can arise, too! For example, higher interest rates cause businesses and employers to cut costs. Some of those cost reductions could cost you your job or that of your spouse! Meanwhile, you still have to make those refrigerator and stove monthly payments for maybe two years on one family salary.

Currently, according to the Federal Reserve Bank, since 2008 household debt has increased 19 consecutive quarters to 13.67 trillion dollars. Non-financial corporate debt reached 9.92 trillion dollars the first quarter of 2019. Both are the highest in history.

Be Prepared For A Rise In Interest Rates!

As interest rates are decreased by the Federal Reserve Bank to help keep the economy growing, families need to be prepared for their eventual rise. I recommend not financing the purchase of the new refrigerator and stove just because interest rates are low, especially if the current appliances are in good working condition. Instead, save for the new appliance and pay cash, if possible.


Review Special Offers Carefully

Be careful about entering into agreements to buy appliances on an offer of ‘interest-free” for a period of time. If you are late on one payment, you will be charged not only a late fee, but you may be liable for interest on the item for the entire eighteen to twenty-four months!

A few months ago, as interest rates were falling, I thought about replacing my 2003 Maytag washer and dryer which were still working well. I went to Home Depot and spoke with a repair tech. He told me I would be better off keeping my 16 year-old Maytag appliances and replacing parts as needed.  He said most new washer and dryers are not as reliable these days and don’t last as long! His estimate for a new refrigerator was a life of five years; my current Subzero fridge has been with me for 25 years!

Spend Wisely…

As a general rule, if both of you are working, try to contain your total revolving monthly expenses (rent/mortgage, utilities, car and food) to the salary of one spouse and save/invest the other spouse’s income. You’ll be happy you did when that emergency knocks at your door.

Budget Budget Budget…

Of course the secret to successful family financial management is a BUDGET!  If you are a single parent, the monthly budget, prepared in cooperation with your children, is an absolute necessity. If it’s not in the budget, it’s not being purchased. It’s not the fashionable attire your wear that makes people seek you out, but rather the “content of your character” that makes you their friend.

Really Necessary?

Note: Higher interest rates are good for bond investors and retirees depending on their retirement funds for income.



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Family Budgets Rule!

The Problem

Families Are Expensive

As we know, raising a family is expensive! It seems there’s a never ending need for new clothes as children grow, unexpected school fees and an ever increasing cost for food. What’s to be done?

Know Your Exact Income and Needs

The first step is to know the total amount of monthly income you have and receive regularly. Don’t count your savings. With that number in hand, make a list of your absolutely necessary monthly expenses. Things like rent or your mortgage payment, lights, heat water, internet, groceries, car payments and required insurance payments.

List Discretionary Expenses

Next list your discretionary expenses. These expenses are things like clothing, dining out, Starbucks coffee, movie rentals, snacks, magazines, hair dying, massages, nail salon visits. lottery tickets. alcohol, jewelry, comic books, you get the idea.

Make A Budget

Now make a simple budget with these categories: Savings, Utilities, Rent/Mortgage, Food, Car expenses and Non-Essential items. Look at last month’s expenses and use those amounts to estimate future necessary expenses.

Pay Yourself First!

Put 10 percent of your income in a savings account for emergencies as soon as you receive it. If you can’t qualify for a savings account, I recommend a reloadable prepaid debit card. There are many reasons people choose a reloadable prepaid card over a credit card. First, a prepaid card requires no credit check or other qualification. Second, a prepaid card charges no interest and no late payment fees. Third, and perhaps most importantly, a prepaid card can act like a checking account, without the high monthly fees and potential overdraft charges.

Prepaid Card?

Use Prepaid Debit Cards?

I personally like the Bluebird Prepaid card by American Express. It has very low fees and is great for budgeting. You can get as many as four cards (for teenagers?) and set spending limits on each one. If you live in a remote area, there may not be a lot of locations that accept American Express so be sure to check on that issue.

“The BlueBird Card from American Express is as close to a no-fee card as we’ve found. With no monthly or annual fees, no transaction or purchase fees, no bill pay fees, and no initial card fee if you order online, the Amex BlueBird Card can save regular users a lot of money.
Additionally, there are no ATM fees if you use one of the more than 25,000 MoneyPass® ATM locations. But perhaps the best feature of the BlueBird Card is the set of personal finance and money management tools that comes with it. Using the Insight® app lets you categorize, track and set spending limits for up to four separate cards. You can also monitor and manage your account from anywhere. In fact, the BlueBird Card is a great way for anyone to establish or relearn good budgeting and money management habits.”

If you can’t use the American Express card my second choice is the. Chase Liquid® Prepaid Visa®.

The Chase Liquid® Prepaid Card offers free direct deposit, free online bill payments, and free PIN and signature transactions, all for a low monthly fee of $4.95. Withdrawing money is also free at any qualifying Chase ATM or bank branch location.
Additionally, reloading doesn’t cost a thing at thousands of Chase ATMs and bank branches, or online through the Chase online banking site or mobile application. Plus, use Chase’s mobile app to instantly deposit a check to your account.

Have Family Budget Discussions

Now that you have secure and convenient access to your money, the next step is to draw a long line under the last budget item. It represents days 1-30 in the month. Write the day ON THE LINE that each of your necessary payments is due. What is the last day you can pay each bill without incurring interest? This is especially important if you receive a paycheck every two weeks instead of monthly.

Is it in the budget?

Now it’s time to get the family together to discuss their necessities for the ensuing month. Add each approved expense to the budget. Try to keep 20 percent in reserve for unanticipated expenses. Now as the month moves forward and you’re at the grocery store with your children and they want to buy some magazines, you can simply say: “No, they’re not in the budget we all agreed to last week.”

For information on allowances for your children, please see the page in this Blog titled “Should children get an allowance”? I hope you will also be able to allocate some money in your budget for your children’s post secondary education. Future Blog articles will discuss the best ways to save for post-secondary education expenses.


How learning influences saving…

How learning influences saving…

Ready and excited to learn!

From birth, we are a voracious learning center full of curiosity. By age 4 or 5 our brain has quadrupled in size. (Goswami 2008) Yet, the ability for us to learn as we grow is dependent upon our cognitive development. Just as children need to walk before they run, they also need personal, enjoyable experiences with money, like shopping with their parents, to prepare them to understand basic financial concepts like counting money, a skill not typically acquired until age 5.

Discovery Learning Reigns!

Early on, we learn by imitating the actions of our parents. From then on, it’s all about discovery learning. Providing children with abundant experiences within a trusted learning environment prepares them to tackle new problems with confidence and try different strategies to solve their problems. (e.g. Chen & Siegler, 2000) This ability, known as metacognition, is valuable in resolving financial dilemmas or better yet, avoiding them later in life.

Make saving a fun experience!

‘You can lead a horse to water but you can’t make him drink,’ is another way of saying learning is more effective if we’re motivated. Children need to understand the relevancy of a proposed activity to their life or they may rebel feeling it’s not worthwhile. Explaining the relationship between the activity and their situation will also give them confidence they can succeed at a task–at their appropriate cognitive level. For example, you wouldn’t ask a 5 year-old to make change. (Gelman and Merk, 1986)

Cultivate A Strong Relationship

Finally, a parent’s relationship with their young child strongly influences the child’s cognitive ability. Reading to your child, language development activities, responsiveness and warmth of interactions influence positive growth and development as well as the motivation to learn. (eg. Grolnick, 2009; Melhush, 2010)

Learning Behaviors Indicate Readiness

As we explore ‘saving’, we will often refer to the extent to which the following cognitive learning behaviors are necessary and relevant to the skill to be acquired. i.e. receiving an allowance. To have a positive learning experience, we will discuss the necessity for a child:

  • To exhibit self-control
  • To plan for future events
  • To be attentive
  • To remember instructions
  • To apply learned concepts
  • To perceive causal relationships
  • To comprehend that skills learned today will be of future benefit

Please share your tips and advice on teaching money management skills with other parents by leaving a comment. All comments are screened for appropriateness. We look forward to hearing from you!