From Pennies to Plastic - Kids don’t need a degree in finance to become capable money managers.

by Monica Wright

A teen’s first true financial test often comes with his or her first “real” job. Imagine giving a teenage girl a job in a fashionable department store and then asking her to save money at the same time. Sounds like the premise of a TV reality show—or possibly the nightmare of teenage girls. When you consider the impact of a regular salary, a store discount and the desire to wear designer labels, very few teenage bank accounts would come out ahead in the end.

Thrivent Financial for Lutherans member Emily Ulgenes, 18, faced that very test when she got a job at Herberger’s, a department store in her hometown of Havre, Montana, in order to save for college. Emily’s mother, Elaine, describes her daughter as someone who “loves to shop, loves clothes and likes to dress fashionably,” not unlike many girls her age. The surprising twist you might not expect: “Emily put most of what she earned into her Thrivent money market account,” Elaine notes.

Elaine and her husband, the Rev. Brad Ulgenes, also Thrivent Financial members, haven’t been surprised by Emily’s financial prowess. After all, for the last several years they’ve been helping her learn ways to make solid and thoughtful fiscal decisions that will benefit her future.

“We want our children to have a balance between spending, saving and giving,” explains Elaine. “We also want them to think ahead to the future rather than just living in the moment.”

Turning Cash into College
In recent years, the entire Ulgenes family has been learning together how to better manage their money to get the best returns. While they started savings accounts for each of their three children when they were young, they didn’t realize the potential of these savings until they connected with Thrivent Financial representative Lee Christianson. “Finding Lee was very important because neither Brad nor I is very savvy as far as financial issues are concerned, and Lee gave us great options,” Elaine says. “We don’t have time to watch the market and different stocks and government programs, so it’s nice to have someone recommend valuable financial options.”

The Ulgeneses felt so comfortable with Christianson that they encouraged Emily to utilize his know-how as well, which is how she switched her simple savings into a money market to earn higher interest. “Only a handful of parents actually bring their kids with them when we meet,” Christianson says. “Most start some sort of savings program and don’t involve their children in the process. But Emily always has been involved in the decision-making and understands why I recommend the things I do. I never understood all the different avenues for funding a college education when I was in high school; she is ahead of the game by being diversified tax- and investment-wise for college.”
 
By knowing Emily’s plans for college—she hopes to become a pharmacist, which typically takes a minimum of six years of schooling—Christianson and the Ulgenes family have been able to tailor their strategy to complement those goals. One step Christianson recommended was a 529 plan, a savings account designed especially for college tuition that offers perks such as preferential tax treatment and the opportunity for anyone to contribute (hello, Grandma!). In addition to the 529 plan, the Ulgeneses also started a Uniform Transfer to Minors Act (UTMA) account, which allows them to generate funds that can be transferred to Emily’s control when she turns 21. Christianson says by creating the UTMA, the 529 plan and Emily’s money market account, the family has generated three buckets of money to pay out during her college career.

With all the decisions ahead of her, Emily feels more confident and prepared—tuition is one less thing to worry about before she heads to college. “I feel like I’ve been very conscious about my finances—I don’t think many of my classmates have been very aggressive with pursuing scholarships and saving money,” says Emily. “I think a lot of teens are more impulsive today, that’s how our society is—you see something on TV and you have to buy it right away.”

Tot Tycoons
Children don’t have to be Emily’s age to start understanding the basics of good money management. Thrivent Financial members Mark and Laura Warrick of Austin, Texas, recently began a system that helped create “fiscal enthusiasm” around their house: they pay their five children (ranging in age from 2 to 12) set rates for various chores—a load of laundry can earn up to 75 cents, for example—in order to generate a modest amount of money for each child. That money is then put into a specially designed piggy bank that has separate compartments designated for spending, saving and giving.

“The younger ones have short attention spans so their chores are small, but it gives them a chance to earn some money,” says Laura. Melissa Knippa, the Warricks’ Thrivent Financial representative, says the family’s approach is a smart one. “Mark and Laura Warrick are looking for opportunities to teach the values they want their kids to learn about money in words and actions,” says Knippa. “It’s a healthy way to introduce their children to money.”

By being mindful of saving and having a special place to sort their hard-earned cash, the Warrick system has created a byproduct beyond just a tidier house: the children love to give. “Even if they’ve worked really hard for the money, they just love to give it away at church,” says Mark. “When the offering plate comes around, they like to reach in their pockets and put in their own donations.”

Actions Speak
As most parents know, teaching moments happen all the time, even when you don’t think kids are paying attention. One of the key ingredients to raising good money managers is showcasing good spending and saving habits and involving your children in the process, at least at some level.

Nathan Dungan, founder and president of Share Save Spend^®, a financial consulting company in Minneapolis, highlights a simple but meaningful exercise that can impact children early. “What we want is real-life opportunities for children to touch money, because the big thing is to make it tangible. There’s a lot of plastic used today, but when teaching young people about allowances, parents should make sure their kids see them using cash. Plastic is a very abstract concept for a young person; use cash, give kids cash and use those learning opportunities to start to teach your kids about money.”

At some point, parents need to make the seemingly inevitable decision to introduce credit cards. Dungan suggests it should happen during the teenage years so children can safely learn about some of the challenges and opportunities of credit. “By age 15 or 16, you should give your child a checking account and debit card and teach them how to use plastic,” Dungan notes. “Give kids a credit card before college in a controlled environment and you can teach them about paying it off each month, how credit scores can impact your ability to get a job, and all of those life skills that most people don’t learn early enough.”

Other Pitfalls
As children gain newfound wealth and begin to make some financial decisions, parents also need to become keenly aware of the dark side of today’s consumer culture. Laura and Mark became more conscious of how marketing and peer pressure affect their children when 9-year-old Kate announced she was saving for an iPod. Her parents asked why she wanted one, and her response—the time-honored “because everyone else has one”—proved to be the perfect learning opportunity.

“We told her that’s not a great reason and that she should keep thinking about it. We didn’t say no, but we knew she didn’t really know what an iPod was, she just knew her friends had them,” says Mark. The Warricks took Kate to the store to look at her options and learn about the various iPod features, and her wants became more focused. “After looking at the store, Kate realized she didn’t need the top of the line iPod with the video feature, especially when she related the price to the amount of work she’d have to do to get it,” says Mark.

Beyond the impact of peer pressure, parents also have to help kids get wise to overt marketing efforts. “It’s important to raise your child’s awareness to marketing and have them recognize all the places and ways they are marketed to,” says Dungan. “It helps to make them more discerning consumers and reframes how they look at the techniques being used on them.” And those techniques can be numerous. According to the American Academy of Pediatrics, children see more than 40,000 television commercials each year—to say nothing of the billboards, radio ads, spam and text messages as well.

The Warricks, like many motivated parents, are well aware that their allowance program is just the first step in a long line of financial lessons they will pass along to their children in the years ahead. Luckily, their 12-year-old daughter Bonnie recently informed them they can skip over the section on credit cards.

After hearing a program about college kids and credit card debt, the horrified Bonnie begged her parents, “Don’t ever buy me one of those!” Music to their ears, no doubt. If only it was always this easy.

Monica Wright is a Minneapolis-based writer for Minnesota Parent magazine.

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