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You're Not Your Kid's ATM

The Early Show, Nathan Dungan shows parents how to instill a sense of financial responsibility in their children
CBS/The Early Show
Tired of your kids begging for sugar cereal at the grocery store, for name-brand jeans, for anything and everything they see advertised on TV? You can stop this behavior; you don't have to be your child's ATM.

In his new book, "Prodigal Sons & Material Girls," financial adviser Nathan Dungan shows parents how to instill a sense of financial responsibility in their children.

According to "The Kids Market: Myths and Realities" by Dr. James McNeal, children between ages 4 and 12:

  • Make about 15 requests per shopping trip with parents
  • Make about 5 requests a day at home
  • Make about 10 requests a day on vacation.

Dungan says some of this behavior is a natural part of growing up. But Madison Avenue has discovered that kids spend or influence their families to spend millions of dollars each year. Companies, of course, want that money, and advertisers have figured out how to market to kids.

And to make matters worse, Dungan says, most parents don't take the time to teach their kids about money. It's hard to believe, but true. There's talk about sex, there's talk about smoking, there's talk about driving a car, but painfully little talk about how to manage finances.

So when should you start teaching your kids the value of a dollar? The first time you hear them say "I want" - usually around age 5, he says. The good news is that parents can correct this behavior before it gets out of hand.

Dungan visited The Early Show to offer the following parenting tips.

Walk The Walk
"Your financial habits shape how your kids manage money for decades," Dungan said. "I've done a lot of speaking, and parents always seem to want to run in and just start teaching kids about money. But you need to step back and look at your own habits. If yours aren't in order, then it's going to be hard to inspire your kids or stick to a financial lesson."

Raise Your Child's Marketing IQ
"Spend some time together analyzing what ads say. Teach your child to be a critical consumer," Dungan said. Instill some "stop and think" behavior in your kids before they run out and spend, he continued.

Share, Save, Spend
Based on the variety of success stories Dungan shares in his book, "share, save, spend" is practically a miracle teaching method that shows kids there are other things to do with money besides buy stuff. It's easy for kids and parents to follow, which means everyone is more likely to stick by the plan for the long term. The basic premise is that each time a child receives money, he should put part of it toward sharing (i.e giving to charity, the school library, etc), part of it in savings and part of it as available for spending.

Different families do this differently, but if you have young kids, Dungan suggests getting three glass jars and labeling one share, one save and one spend.

"When kids are young and you're first teaching them this concept, it's good to divide their money evenly between the three," Dungan said. "You want them to get into a positive rhythm and make the point that there are different things we can do with money."

Dungan went on to say that the visual aspect of this exercise is important as well. Money is such an abstract concept to kids. It's very helpful for them to see money accumulating in the glass jars. He also suggests having kids write down where their money goes when they do spend or share it. Keeping a small logbook gets them in the habit of accounting and understanding where their money goes.

As you child gets older you might consider expanding "share save spend" by opening checking and savings accounts.

Why lead with sharing?

"This develops a sense of gratitude," Dungan explained. "When kids are grateful for what they have, they are more likely to live within their means."

What should be done with the money in savings?

"Set savings goals," Dungan said. "When goals are in place, you appreciate what you wind up buying." Younger kids should only be expected to meet short-term goals - maybe one or two weeks. As children grow up they will begin to save for larger items, which will take them longer.

What other benefits will parents see from "share save spend"?

Having their own money to spend helps kids learn to distinguish between needs and wants. Parents will experience many fewer bouts of "I want this, buy me this."

Grandparents

You've tried your best to improve your own financial habits, to instill good financial values in your kids, to stick by the "share save spend" plan ... then, disaster strikes. Grandma and grandpa come for a visit and shower the kids with every new toy on the market. While this may be a slight exaggeration, there's no question that grandparents like to spoil their grandkids. Unfortunately, this outpouring of generosity can undo a lot of the work parents have done to wean kids from their materialistic tendencies. As a parent, how do you handle this?

"If parents notice a pattern they are uncomfortable with, they need to sit down and talk about it right away," Dungan said.

Explain what you are trying to do and why their actions are interfering.

Then, give grandparents ideas for gifts they can give that actually reinforce the lessons you are teaching. One of Dungan's favorites: a share check. Grandma makes out a check and fills in everything except the "payable to" line. The child gets to decide who gets the money - a local animal shelter, his Boy Scout troupe, his church.

Or, grandparents can offer to match money that the child places in savings.

While the message may come as something of a shock initially, in the end, Dungan said, grandparents will be happy to know that they can be a part of the solution to the problem.