Money Coach: Show Your Kids The Bills

As kids are beginning to seek summer jobs, how do parents teach them to be responsible with their earnings? Financial consultant and educator Pamela Yellen says exposure to household finances is the key. In this week's "Money Coach" segment, host Michel Martin and Yellen discuss tips for teaching kids money management.

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MICHEL MARTIN, Host:

And now it's time for our Money Coach conversation. That's where we talk about matters of personal finance and the economy. And today, with spring in the air and summer around the corner, many teens are looking for that summer job. For parents it's not just a chance to get kids out of the house, it's an opportunity for their children to get real world experience making and managing their own money.

But can families do more to give young people a solid foundation for their future financial health? Our next guest, Pamela Yellen, has some answers. She's the president and founder of Bank on Yourself. That's an organization dedicated to helping families and small businesses reach and maintain financial security. And she's blogged about teaching smart money tips for young people, particularly teens, on her website. And Pamela Yellen is with us now on the phone from Carlsbad, California. Thanks so much for joining us.

PAMELA YELLEN: Oh, it's my pleasure, Michel.

MARTIN: You said that this is a good time to talk to teens about personal finance, particularly with that summer job, hopefully, coming up around the corner. Why is that?

YELLEN: Well, most people get their knowledge about personal finance from their parents than from any other source. And of course the parents learn from their parents. You know, it wasn't very long ago when people didn't even know what a credit card was, only paid cash for their cars and didn't personally invest in the stock market. So probably no surprise that 41 percent of adults give themselves a C grade or lower in their knowledge of personal finance, according to a recent survey.

And that's why we're teaching kids and their parents to do things 180 degrees differently so they can avoid making the same mistakes.

MARTIN: Do you think that parents have a hard time talking to kids about money? You know, the birds and the bees conversation is the one that, you know, we traditionally think of as being the hard one. But you think that talking about money is equally hard?

YELLEN: At least as hard. And, in fact, it can be difficult for some couples, who, you know, don't even discuss money matters openly, regularly with each other. They have different attitudes about money. They have embarrassment about it. They may not be even keeping joint accounts. Some couples keep separate accounts. So these are difficult discussions to have, especially, you know, what are we spending our money on and is that really where the money should be going?

MARTIN: I hear you saying that your experience is that a lot of people have a lack of confidence in handling money, you know, themselves - a lot of adults do. But do you find that teens have misconceptions - of common misconceptions about financial management that you want to highlight? I'll just give you one example. There's a young lady that, you know, I try to keep in touch with, the family situation isn't the best and I, you know, try to mentor her. And one of the funny conversations that we had once is that she told me that she couldn't wait to get a credit card. And I said, well, why is that?

And she said that, you could just buy whatever you wanted. I said, well, you still have to have the money. And she said, really? I mean, she didn't realize that once you swipe that card you actually had to have the cash. She thought there was some sort of a magical thing where you could just - if you had that credit card, people would just give you stuff, and didn't realize that there was actually money behind it. That you actually had to pay the bill, because she had never seen her parents pay those bills. She'd just never seen it. I don't know - so anyway, so I just wanted to flag that. Just say - have you...

YELLEN: Oh, Michel, what a great example. And that is absolutely true. Electronic, the Internet - all of that has made it so easy to spend money that we've actually separated spending money from the idea that it actually costs money and you actually have to pay for it. Credit cards are one of the worst things you can give to a child. Or even to a teen. They really need to have that feeling of this is real money.

And interestingly, they did a survey of college students. They did a little experiment and they had sold out tickets to a very popular basketball team. And half the kids had to pay for these tickets with cash, half had to pay with credit cards. And the people who had the credit cards actually bid twice as much for the exact same tickets as the kids who were paying cash, because people have no conception when they have a credit card in their hand as to what it's related to.

MARTIN: You are a big proponent of pretty complete financial disclosure with teens. Why is that?

YELLEN: I think that it's critical. If you don't talk about money, it's almost like it doesn't exist. If you make it seem that money just falls from trees, we don't have to think about it, we don't have to worry about it, then you end up in a situation like the one that you just described where people have no conception. They want to buy everything that they see or that their friends have. And they really don't stop to think about the difference between needs and wants.

MARTIN: You're saying that bills should be paid, what, monthly? And that everybody should sit down together and pay them altogether?

YELLEN: Yes. Yes. Definitely the act of actually writing out a check. Get the kids to write out the checks and help reconcile the bank accounts. That is a fabulous exercise that we have found really, really works.

MARTIN: Well, you know, a lot of people pay their bills online. They find that much more efficient and perhaps even more secure.

YELLEN: They do and we're saying, you know what? You need to go back to an earlier time because that is all part of what you're talking about, Michel. Where people cannot relate the value of stuff with the money it takes to buy them. So just as an experiment, just for fun, go ahead, get that checking account out. Write the check out, put it in an envelope, put a stamp on it and put it in the mail and you will get a very, very different feeling about money and the cost of things.

MARTIN: Pamela Yellen is president and founder of the financial literacy organization Bank on Yourself. She's the author of a book "Bank on Yourself: The Life-Changing Secret to Growing and Protecting Your Financial Future." And she was with us on the line from Carlsbad, California. Pamela Yellen, thanks for joining us.

YELLEN: It's my pleasure, Michel.

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