ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Monday, September 2, 1996 TAG: 9609040044
SECTION: MONEY PAGE: 6 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
Instilling your children with the habit of saving small amounts of money today can offer them big dividends when they reach adulthood. And older children who have jobs can even learn to move from saving to investing.
Jean C. Vandergrift, home economist for Roanoke County, said even young children can have a piggy bank in which they save some of their pennies. In fact, she suggests they have two banks - one for short-term goals and another for long-term wishes.
If the children are young enough, she said, the short-term goal might be only two days hence. But the children should be saving for some specific purpose, perhaps a toy, so that they learn the relationship between saving and goals.
Parents, Vandergrift said, must realize that children need to start saving very young so that "when they are older they do not make big-bucks mistakes."
The Virginia Tech Cooperative Division offers a free publication to help parents teach their children about handling money. It is called "Kids, Food and Money." To request a copy, Vandergrift said, parents can call the Roanoke County office at 772-7524 or the Virginia Tech Cooperative Extension office in your home county. Copies can be mailed.
Also, Vandergrift said children should be included in family discussions about money and budgets, especially those conversations about saving or paying for a major household purchase such as a new refrigerator or dryer.
Children who listen to adults talk about budgets and paying for family needs, she said, are likely to be less demanding of their parents for expensive items for themselves.
Parents should take their children comparison shopping. Vandergrift said even young children should learn to visit two or three stores to study prices and available goods before making a purchase. "Teach that skill early," she said.
Introduce them to banking as well, Vandergrift said. Saving some of their allowance, baby-sitting money or birthday cash will show them how compound interest will help their money grow. Most banks offer accounts with no fees or minimum balances for children younger than 18.
If you give your children an allowance, Vandergrift advised, start early because you are teaching them about money. They will gain an understanding of how money is used in the marketplace. Have an understanding about the items that the allowance must cover.
Allowances should be routine and regular. Vandergrift said it should not be a reward for doing chores, achieving good grades or behaving well.
Vandergrift would have children set aside a portion of their allowances for both savings and charity.
As children grow old enough to earn money, she said, have them set up an Individual Retirement Account. If they start early, Vandergrift said, they will save up a tremendous amount of money for their retirement.
She also suggested imposing a household "tax" on earnings for family costs. Children should learn early, Vandergrift said, that a salary of $30,000 translates into much less money on a take-home basis.
As your child grows older, the Virginia Society of Certified Public Accountants said, he or she is likely to realize what most adults already know - the return on a savings account isn't enough to keep them ahead of inflation, much less reach their goals quickly.
When that time comes, the CPAs said, your child might be ready to add investing to his or her existing savings program.
Mutual funds are an easy way for children to get involved in investing, the accountants said. The advantages of investing in mutual funds are the same for children as for adults: low cost, professional management and diversification.
Several mutual fund companies offer funds targeted to children, investing in companies that make products and provide services that children know - such as McDonald's, Coca-Cola or Disney.
Look for a fund with a low minimum for additional deposits. This will make it easy for children to use birthday and holiday gift money to purchase additional fund shares. In the case of children, you should probably consider growth-oriented funds.
Investing in stocks directly, on the other hand, can teach children how businesses operate and how shares of a company grow in value when people buy the company's products and services.
For your child's first investment experience, the CPAs suggested companies that make the computers your children use or the movies they watch or the sneakers they wear. Well-known, high-profile stocks are easy to track through the media.
Before your children invest their savings, make sure they understand the concept of risk and how it relates to investing. Then spend a few weeks following the company's stock quotation so the children become accustomed to daily price fluctuations.
Encourage your children to go to the public library to research companies that interest them. Value Line Investment Survey, which gives analysts' reports for all companies traded on stock exchanges, and reports from Standard and Poors and Moody's are good places to start. You should write for a copy of the company's latest annual report.
Children cannot purchase and own stock directly, so the broker will have to set up the shares in a custodial account.
Saving and investing also will teach children about the importance of taxes.
Until a child reaches the age of 14, the first $650 of unearned income in the child's own name is tax-free, and the next $650 of income is taxed at the child's rate, usually 15 percent.
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