Get your pencils and your dinero ready. Going back-to-school for children should also mean family lessons on managing money.
According to personal finance expert Andrés Gutiérrez, the longer a person goes through life without cementing healthy financial habits, the harder it becomes when he/she reaches retirement. Establishing the correct work to money correlation during productive years will ensure fewer financial headaches later on. But, according to Gutiérrez, a good financial education shouldn't be initiated when income is earned; it must start at childhood.
"We are hard-working people who want to provide everything our children need; we want to give them a better life," says Gutiérrez of most American families who he believes aren't doing much to teach their children about money by spoiling them and providing an overgrown sense of entitlement. Gutiérrez offers the example of Latin families trying to follow expensive traditions like Quinceañera parties. Instead of looking at the finances they can count on, parents end up having a lavish celebration spending money they don't have. "It's the idea of 'We deserve it' that gets passed on," says our expert. Children grow up without a real sense of the value of money. Once they become adults, the lack of money management education can easily turn into a bad cycle of debt.
Putting a money lesson plan together
The moment a child enters kindergarten, parents need to devise an age-appropriate plan to make money management an important part of their life-long learning, according to Gutiérrez, who has children ages four to eight. He's prepared an elementary system based on three essential areas of financial management: Giving, Saving and Spending.
At the Gutiérrez household, children get a "commission" for doing their assigned chores rather than an easily attained allowance; if chores aren't done, the kids just don't get paid that week. The kids, then, divide their money into three envelopes: one for Giving, one for Saving, and one for Spending. The parents oversee that the chores are done and decide the amount of the commission. How the kids earn their money and divvy it up is done according to their ages:
Examples of chores for children at this age can range from making beds before leaving for school to putting dirty clothes in the hamper. Commission can be anything from five quarters to $5 dollars per week. Gutiérrez has his children put at least one commission into the Giving envelope, two in Savings and three in Spending. Trips to the local dollar store are usually preceded by excited shouts of "Let me get my Spending envelope!"
At this age range, children can also earn money outside of the house, and add their winnings to their 3-envelope budget. Appropriate jobs may include house or pet-sitting or watering a neighbor's plants. They're also ready to use basic percentages and establish 10% of their commission towards Giving. They start setting up Savings goals like laying aside money for special trips, and using their Spending money towards larger or more expensive items like a bike.
"This is a time when it becomes clear that money is finite-when it's gone, it's gone," says Gutiérrez. At this point, the teenager is able to open a checking account under his or her name, and write checks with a parent as custodian. A savings account can replace the envelope, and it's used to gather the funds for their first car. Income continues to benefit from outside work, but now they can start a lawn mowing or baby-sitting business for continuous profit. Budgeting gets more specific with multiple Spending envelopes, like for sport equipment or a favorite outfit. Parents deposit their commission directly into the account. "They quickly realize that when it's their own money they have to work with, the jeans they want don't have to be the expensive ones," says the expert.
Parents want to give their children the best possible education, but this education must include learning about how to handle money properly, according to Gutiérrez. Successful professionals and effective leaders are the ones who have learned how to be good managers of their own finances for life.
Financial expert Andrés Gutiérrez is the host of "The Andrés Gutiérrez Show" and creator of Paz Financiera. A successful entrepreneur and small-business owner, Andrés Gutiérrez knows what it's like to start with nothing and build lasting wealth. After hosting a San Antonio financial radio program and appearing frequently as a financial expert on the Telemundo television network, Andres joined Dave Ramsey's team in 2009 to bring the message of Financial Peace to the Spanish-speaking community.