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Welcome to the Center for Financial and Consumer Outreach's May installment of Mindful Money for the 2011-2012 year! This month Cathy Faulcon Bowen with The Pennsylvania State University Department of Agricultural and Extension Education will lend her expertise on the topic of Building a Base for Complex Financial Concepts.
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Mindful Money
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Recently, I had a conversation with a physicist about an undergraduate's prospects for furthering her education in physics. I do not know much about physics, but the essence of our conversation was this. If students have a solid base or understanding of core concepts (in this case physics), they have the necessary foundation on which to develop their career in a direction they choose. The reverse is also true. If the foundation is weak, time must be spent reinforcing or strengthening the base before progress can be made. By now you may be asking, "What does this have to do with money management?"
Our future society will depend on the next generation - our kids and their ability to manage themselves and the money they earn. While financial education efforts are needed in many places and at all age levels, a strong argument can be made for putting additional effort into teaching our kids about money. Why? Once a solid foundation about money is established, it will become easier to learn complicated financial concepts.
 Additionally, it will become easier to adapt to new money handling techniques that will certainly surface in the decades to come. For example, those who were taught the correct way to: a) write paper checks, b) keep a check register, and c) balance the checkbook AND those who routinely practiced these steps were less likely to have trouble managing a checking account when debit cards, on-line banking and electronic check registers became widely used.
As parents or influencing adults, you are positioned to shape desired behaviors and habits in children. Habits learned as kids are likely to be practiced the rest of our lives. For instance, most of us brush our teeth and comb our hair each morning before leaving home without much thought. It is part of our daily routine. We did not do these things automatically. Our parents and other caring adults modeled what to do, watched, corrected our actions as we learned these new skills, and reminded us as needed until they could see the habits were well established in our daily routines.
By establishing key money behaviors and beliefs in children while they are young they will have a solid foundation to learn more complicated financial concepts. Therefore, what basic concepts should we teach children? First, model the behaviors you want children to learn. Children will do as you do. Like it or not, parents and other adults are teaching children how to manage money every day. A few starters to focus on are below.
Money has to be earned. Children who work for the money they spend are likely to be more careful in how they spend it. When money is continually given to children to spend, there is no accountability and less desire to be frugal. Pay children
 for odd jobs they perform at home that you might pay someone to do. When jobs are done exceptionally well, give them a reasonable bonus to acknowledge the effort. As they get older, help them find a job where taxes are withheld from their paychecks.
The difference between a want and a need. Play a need/ want game using pictures of various items that represent needs and wants. Help children learn that needs are essential to sustain life and wants are like the icing on a cake, nice, sweet, but unnecessary.
Live within your means or stated another way, don't spend what you do not have. Wise managers control and adjust what they can so income and expenses are balanced. The sooner kids understand this concept; the easier it will be for them to handle life as teens and adults when needs and wants will most likely exceed income. Avoid constantly giving them money to buy items they cannot afford.
Small amounts add up to large sums. Take care of the the pennies, nickels, dimes and quarters as those coins can become paper bills. Look for ways to reduce waste in handling all resources (food, clothing, money, energy). Put a change jar in a visible location in your home. Everyone can add coins to the jar. Once the jar is full have, family members guess the amount in the jar. The family member with the closest guess to the amount in the jar gets a prize.
Save for the rainy day. A day or week can be forever to children. However, if they are routinely taught to set aside a reasonable portion of any income they receive, it is going to be
 easier for them to set aside part of their earnings in the future. Give children repeated opportunities to save money and experience making a needed or wanted purchase with their savings. They will understand delayed gratification and be more likely to value saving money for large purchases or long term goals.
Share with others. Teach this concept by having children share their toys, food, and other possessions. If you attend a place of worship and giving money is part of the service, have children place their coins or bills in the collection. Establish a monthly routine of donating food or money to a shelter or food bank. As a family, pick a charity to support and routinely volunteer as a family.
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About the Expert
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Cathy Faulcon Bowen, PhD., CFCS
Professor of Consumer Issues
The Pennsylvania State University
Department of Agricultural and Extension Education
 Cathy Bowen is a professor and consumer/financial issues specialist in the Department of Agricultural and Extension Education at Pennsylvania State University. She works with county-based extension educators to reach Pennsylvania residents with information on basic money management including credit, consumer rights and responsibilities and fraud and scams. She teaches a course Consumer and Financial Skills that targets juniors, seniors, and graduate students. Bowen's work has received national awards by professional organizations as well as been featured on NPR, National Public Radio and CNN's Open House. Dr. Bowen is member of several organizations including, The Association for Financial Counseling and Planning Education, The American Association of Family and Consumer Sciences, National Extension Association of Family and Consumer Sciences, and The Financial Planning Association. Bowen earned a bachelor's degree from North Carolina A & T State University in Greensboro, North Carolina and completed graduate studies at The Ohio State University in Columbus, Ohio (M.S. and Ph.D.).
email: cbowen@psu.edu
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