HOW MONEY WORKS

A Parent’s Guide
TABLE
OF
CONTENTS
Check the Money Mirror 4

To Save or Not to Save 6

Budget Basics 8

Cultivating Smart Shoppers 12

Credit and Investing 14

Giving Back 18

Age Matters 20

Growing Up Money Smart 22

I
n today’s world, children are constantly bombarded with products and services that advertisers
spend billions each year trying to convince them that they need.
When you think about how many outside forces are vying for your children’s financial attention, it’s a
pretty scary thought! But how do you combat this marketing siege without breaking the bank?
How Money Works … for Kids is designed to help you teach your children simple financial strategies
now so they’ll be better equipped to deal with money matters on their own later.
You have the power right now to help your children avoid common money mistakes by helping them
grow up “money smart!”

Talking It Out
One of life’s ironies is that we go to school to learn how to make money, but we don’t learn strategies
for handling that money responsibly! As a parent, you’re in the perfect position to guide your children
through the money maze as you help them develop healthy money attitudes and formulate good
strategies for saving, spending, investing and giving back to their communities.
Helping your kids become money savvy doesn’t have to be complicated. All you need to do is start
the conversation and keep it going as you use money to deal with your everyday life. When you’re at the
grocery store or department store, explain the difference between “wants” and “needs” as you shop.
When you’re paying for something with a credit or debit card, talk about the differences between the two
methods and how to use each responsibly.
It’s important for your kids to grow up knowing how to deal with money – so they won’t fall into the
same traps that many adults are in now!
CHECK THE
MONEY MIRROR
A
s they grow up, kids pick up on adults’ the house, etc., those attitudes are naturally
behaviors and attitudes – whether going to rub off on your kids. In fact, many
social, work-related or financial. So adults’ money issues come from childhood
modeling good money management is one of impressions they got from their parents.
the best things you can do to get them ready Here are a few things you can do to
to handle their own money! avoid passing a negative legacy on to your kids.
If you are constantly worrying about
money or expressing anxiety about going
broke or not being able to pay bills, losing
Set an Example
• Decide what attitudes you want your kids to have • Be in the habit of giving – when you give to charitable
toward money – then exhibit them yourself. causes you’re encouraging your kids to be socially
minded.
• Emphasize the “value” of money – teach your kids
• Speak openly about money with your kids – you don’t
that money isn’t “free.” You have to work for it, and
have to go into all the details of your family finances,
thus, are working for the things you purchase.
but talking about how money works and how to use it
• Pay yourself first – If you want your kids to save,
wisely will go a long way.
they’ve got to see you doing it, too!
• Keep your priorities straight – the last thing you want
• Get your debt under control – Indirectly teaching
to pass on to your kids is the feeling that money is more
your kids to rely on credit could give them the
important than family and friends!
wrong idea about plastic.

Money can’t buy happiness … or love, but learning how to manage money wisely will enable your kids to avoid many of
the same money mistakes you may have made!

The Usual Suspects

Everyone makes money mistakes. It’s part of life. However, helping your kids recognize potential potholes on the road to smart
money management is a great place to start!

Common Mistake Money Smart Fix

Losing Money Children should never have more cash on them than they need, simply because it is irreplaceable if
lost or stolen. Making sure they have a safe place to keep their money is the key to fixing this money
mistake! If the problem persists, try doling out allowances or other funds in smaller amounts, more
frequently. Or set up a bank savings account to help them keep better track of their cash!

Borrowing Money Get your kids used to paying back what they borrow early! By expecting them to return the “loan,”
you’ll reinforce that money isn’t free. The same works in reverse. If you borrow money from your
kids, pay them back – with interest.

Inappropriate Purchases If your child wants to purchase something you feel is unsafe, unhealthy or otherwise inappropriate,
say no and stick to it!

Greed and/or Miserliness If you notice your kids aren’t willing to part with their money for anything (i.e. buying gifts
or charity) or if they hoard it, explain that money itself isn’t valuable – it simply allows us to
purchase the things we want or need. Helping your kids understand how rewarding sharing
wealth with others can be is important to their overall attitude.

Credit Card Debt Until they reach college age, credit cards are not a good idea. Once they have a card, however,
encouraging them to pay off the balance each transaction period will help keep them financially
balanced. If debt begins to get out of control, encourage them to stop using the card and set up a
personal payment plan to pay more than the minimum each month.

5
TO SAVE
OR NOT
TO SAVE
F
or kids, the thought of retirement is pretty
much non-existent, but teaching them the
principles of saving for the future – whether
it’s a car when they turn 16 or go off to college –
or anything in between is of vital importance. By
learning how to be financially literate, your kids will
have a much better foundation for saving when
they reach their 20s and beyond!
A Penny Saved…
As you’re encouraging your youngster or teen to start child understand the value of saving as much as they can
saving for the future, here are a few “tricks” that could while they have the opportunity to put more away, you’ll be
make things a lot easier! reinforcing the importance of planning ahead. Of course,
your child will always save more if they pay themselves first!
Savings Trick #1: Pay Yourself First
Help your kids put their savings on “auto-pilot” by forming Savings Trick #3: Where Is It Going?
the habit of immediately saving a portion of their income A great way for your kids to learn how to stick to a budget
(allowance, earned money, gifts, etc.). If your child has a is to keep a money journal. Have them write down all their
savings bank account, use bank statements to illustrate the income and subtract all expenses. A money journal isn’t
power of compound interest! If your child doesn’t have a only helpful to see where their money is going, but it’s also a
bank account, consider paying them “interest” for every great primer for balancing a checkbook!
dollar they save in their home “bank.”
Savings Trick #4: Slash Expenses
Savings Trick #2: Saving Is Linked to Expenses Pull out the grocery ads from your newspaper and go
A person with many expenses will have a smaller portion of through the sales with your kids. Find ways to cut costs –
money left over for spending or saving. A person with fewer such as buying sodas in bulk instead of through a cafeteria
expenses will have more disposable income. By helping your vending machine, or bringing their own lunch to school.

The Rule of 72
The Rule of 72 is an easy way to calculate just how long it’s going to take for money to double. Just take the number 72 and
divide it by the interest rate you hope to earn. That number gives you the approximate number of years it will take for your
investment to double. Use this chart to figure out how many “doubling” periods your child’s money can have!

Years 3% 6% 12%
0 $10,000 $10,000 $10,000
6 — — $20,000
12 — $20,000 $40,000
18 — — $80,000
24 $20,000 $40,000 $160,000 Dividing 72 by the
30 — — $320,000 interest rate equals the
36 — $80,000 $640,000 number of years it takes
your money to double.
42 — — $1,280,000
48 $40,000 $160,000 $2,560,000

This table serves as a demonstration of how the Rule of 72 concept works from a mathematical standpoint. It is not intended to represent an invest-
ment. The chart uses constant rates of return, unlike actual investments which will fluctuate in value. It does not include fees or taxes, which would
lower performance. It is unlikely that an investment would grow 10% or more on a consistent basis, given current market conditions.

7
BUDGET
BASICS
U
se the money journal idea to help your
kids set up a doable budget based on
their income, or just to see where their
money goes. Check out these sample budgets to
get an idea of how to set one up for your kids!
Sample Budget #1

Income Expenses

- - Earbuds $10

Allowance $10 Birthday Gift $15

Lawn Work $10 Savings $4

Birthday Money $20 Charity Donation $4

Total $40 Total $33

$7

Sample Budget #2 (Similar to a check register)

Date Paid Received From For What Amount Balance

2/5 - Mom & Dad Allowance $10 $25

2/6 Coffee Shop - Coffee & Snacks $12 $13

2/12 - Mom & Dad Allowance $10 $23

2/16 - Grandpa Birthday $20 $43

2/18 - Mom & Dad Allowance $10 $53

2/25 Charity - Donation $10 $43

2/27 - Mom & Dad Allowance $10 $53

2/28 Savings - Monthly Deposit $10 $43

Needs, Wants and Goals

Your kids make choices every day – from what to wear to school to choosing free time activities. You prepare them
to make good social choices, but learning to make sound financial choices is no less important! Helping your kids
understand the difference between wants and needs could be the key to developing money savvy kids!

9
 Getting Started Kids and Business
The best place to start is for your children to have If your enterprising youngster or teen needs extra
money of their own. cash, doing odd jobs around the neighborhood can be
a great way to cultivate that entrepreneurial spirit and
• Allowance – some parents tie household chores
pad their bank account!
to a specific amount, some parents simply give
their children a set amount each week.
Make Extra Money
• Periodic jobs – depending on how old your chil- Here are some great ideas to score some spending money:
dren are, mowing lawns or babysitting could be
• Extra chores around the house or for a friend
great ways for kids to not only make some extra
• Baby-sitting (must be at least 12 and responsible)
money but develop work ethic skills they’ll use as
• Pet-sitting or dog walking
they get older!
• Yardwork or gardening
• Other money – birthday money and other mon-
• Washing cars or windows
etary gifts provide extra funds.
• Tutoring or coaching – generally best for older kids

Allowance Basics
Many parents tie allowance to their child’s age – giving a six-year-old $6, etc. As they grow up, however, the
things they want to buy may exceed their weekly allowance – so starting early with the concepts of budgeting
and saving could help prepare them to make that money stretch!

Here are a few tips to help you with the perfect allowance system for your family:

1. Make payouts regular and on time – pick a day 5. Ultimately, let your kids decide how they want to
and stick to it. handle their money – the point of allowance is for your
kids to learn how to deal with money themselves, so
2. Younger kids need a weekly payout schedule, but a
offer guidance, but don’t direct (unless their purchase
monthly payout for teens would help them develop
decisions are harmful or go against your family’s
budgeting skills.
principles).
3. Decide up front what you expect the money to cover –
6. An important part of life is making mistakes and
will they need to buy school lunches with it? Clothes or
learning from those mistakes – so when this happens,
supplies? Or do you intend it to be spending money?
take that opportunity to help your child make the right
Will you be giving them money when they go out with
decision the next time!
friends in addition to their allowance, etc.?

4. Giving younger kids their allowance in small

denominations is a great way to encourage saving,
giving to charity and spending – i.e. $6 could be
given as five ones, two quarters and five dimes.

10
 START A BUSINESS
Does your teen have a great idea for a part-time business? Starting their own small business
could be a great way to not only make some extra money, but also explore interests that may
turn into life-long careers! These steps will get you started:

1. Map Out a Business Plan 4. Know Your Tax Laws

Is start-up cash needed? Is this an idea that Know the tax laws and requirements for your
state – set up an appointment with someone from
has potential to take off or is it more along the
the Small Business Administration or Chamber
lines of a hobby? Are there any risks involved?
of Commerce. Then talk to an accountant or
Will they need help running the business, etc.?
someone in the know who can make sure your
teen files the right paperwork and pays any
applicable income or self-employment taxes.

2. Check the Market

Check out the market to make sure there’s
a need for the products or services your
teen wants to sell – i.e. if there’s already a
5. Develop Good Habits
landscaping crew in your neighborhood, Help your teen develop good business habits

chances are another lawn mowing service – dress appropriately for the job, keep track

won’t be very successful. of receipts and invoices, deliver products or

services in a timely manner, etc.

There are all sorts of ways to earn money –

and learning to be proactive about income will
prepare your kids for all the responsibilities
3. Think About Advertising
that come with an actual paycheck! What you
How will people find out about this business?
teach them now will affect what they do later!
Flyers? Word of mouth, social media, or email?

11
CULTIVATING
SMART SHOPPERS
L
earning how to manage money wisely priced retail stores, your kids pick up on those
means learning to make your money habits and are likely to do the same.
go further! Chances are, your kids So how do you create money-savvy
are watching how you select the items you children? By helping your kids understand the
purchase, and that’s the kind of behavior they concept of value – and comparison shopping!
will model. For example, if you only purchase
name brands or skip outlets in favor of higher
Unit Costs & You
Just because a product is bigger, doesn’t mean it’s a Let them decide between brand name and generic as
better value. Companies package their products in such well as regular and economy sized. For each item, they
a way that you think you’re getting more for your money should write down what the unit cost is. Then, have them
in the economy size, but taking a closer look at that unit calculate the price difference between the higher and
cost sticker on the shelf might reveal a different story! lower priced items.
The next time you go grocery shopping, take your
kids with you. Have them help you choose the best value
for the money you want to spend on each item.

It Pays to Comparison Shop

Brand vs. Generic

Superior Brand Cake Mix, 16 oz. Generic Cake Mix, 16 oz.
$2.24 or $0.14 per oz. (unit cost) $1.60 or $0.10 per oz. (unit cost)

Many times you’ll find that although you pay more for brand name products, the generic
products work just as well. It’s up to you to decide whether or not you want to pay the difference.

Regular vs. Economy

12 oz. Can of Green Beans 20 oz. Can of Green Beans
$0.96 or $0.08 per oz. (unit cost) $1.80 or $0.09 per oz. (unit cost)

You can learn whether or not the bigger size is really a better deal or just…bigger!
In this case, the smaller can of beans is a better buy.

The Cost of Cool

As a parent, you’re already, no doubt, well aware of just more, but the brand name jeans you like cost $50.
how much it costs to look “cool.” When you buy a brand The value of the jeans for YOU is $30. The value of the jeans
name product, you often are paying for the label – not for the SELLER is $50. In this case, the “cost of cool” is $20
necessarily a higher quality than its corresponding more than what you were willing to actually pay.
generic counterpart. Teaching your children to shop A great way to put this concept into action is to give
around for the best value is the best way to help them get your kids a specific amount they can spend on necessities
more for their money! – clothes, items they need for school, etc. As they shop
The key is to understand the concept of “value.” Each around for the best buys, help them keep track of what
individual has to ultimately assign their own value to an item they’re spending. If your child absolutely “must have” an
they want to purchase. For instance, let’s say you are only item that would put them over budget, let them come up
willing to spend $30 on a pair of jeans and not a penny with the difference with their own money.

13
 CREDIT
AND
INVESTING
I
n today’s world, where debt is spiraling out
of control, teaching your kids how to handle
plastic responsibly is vital. The danger of any
kind of “invisible” money is just that – purchases
are made on an electronic account, without
actual cash. Anything that isn’t cold, hard
cash – even debit – has the tendency of being
perceived as “free” money.
However, many college freshmen have
at least one credit card. If your son or daughter
will be one of them, getting them started while
still at home will help you guide their credit
choices so they’ll be better prepared for the
relative freedom of college life.
Start out by explaining that using credit
is a privilege, not a right, and abuse of that
privilege will result in its loss. Then, do some
homework. Experts suggest you start off with a
Student Card or a “secured card,” which works
much like a pre-paid account.

14
More Than It Seems
Using a credit calculator is a great way to explain what a credit card purchase
actually costs if not paid off immediately. Take a look at this example:

If you use a credit card with an APR* of 16% to buy a $300 tablet…

You Pay Bill Is Paid Off In Your Total Cost

$25/month 14 Months $329.11

$50/month 7 Months $314.83

$100/month 4 Months $308.25

$300/month 1 Month $300.00**

*Annual Percentage Rate (your interest rate). **Assuming you pay the full amount on time and owe no interest.

Investment Basics
The biggest difference between investing and saving is how much time and risk are involved. Investments typically
represent a long-term commitment and are a great way to grow your money for long-term goals. They might have
more risk, but they also have more earning potential. Savings accounts, however, are much more accessible for
fulfilling short-term goals.
Although minors cannot trade stocks or open bank accounts on their own, you can certainly do it for them.
Here’s what you need to know to get started:

Investment 101 Mutual Funds

Low-risk investments such as CDs generally fall into the A mutual fund is an opportunity for you, together with
“savings account” category. CDs and savings accounts are many other investors, to pool your money. Professional
FDIC insured up to $250,000. Some higher-risk (and there- money managers invest the “pool” for you, keeping the
fore higher return) investments are as follows: investments under constant supervision. The money
managers use their knowledge of securities and chang-
Bonds ing market conditions to invest the pooled assets in
Government bonds can be purchased at banks. The many different companies within a variety of industries.
money is not insured, but is fully backed by the U.S. gov-
ernment. Corporate bonds are less safe, but usually pay Collectibles
higher interest rates. Bonds range from less than a year If your kids choose to collect, warn them that there’s no
up to 30 years. way to be sure items in their collection will increase in
value over time.

15
 When Your Goal/Timeframe Is... Consider...

Long Term GROWTH investments like:

5 Years or More (i.e. saving for college) Stocks

Short Term INCOME investments like:

1 to 5 Years (i.e. buying your first car) Bonds

Immediate CASH equivalents like:

Less than 1 Year (i.e. summer basketball camp) Savings Accounts

Investing entails risk, including loss of principal, when redeemed and may be worth more or less than the original value.

The Rule of 72 & Compound Interest Time Is Money

The Rule of 72 shows the dramatic effect of time and If your child’s goal is to save $600 for a new computer for
compounding. Using a simple formula – dividing the college at age 18, look at the difference time makes! The
number 72 by the interest rate earned – you can figure sooner they begin to save, the greater the growth on their
out the approximate number of years it will take for initial investment.
your money to DOUBLE!
Savings Goal: $600 at age 18
An integral part of the Rule of 72 is letting the
Monthly Savings Required
power of compound interest work for you. Let’s say
your kids deposit $50 into a savings account earning Begin at: Save: Cost to Wait:
6% interest. After the first year, 6%, or $3 was credited Age 10 $4 -
to the $50 making $53. The next year $3.18 of interest Age 12 $6 1.5 times more
was earned on the $53 giving your child a total of Age 14 $10 2.5 times more
$56.18 in their account. Age 17 $48 12 times more
You can see where this is going … as the account
The High Cost of Waiting
continues to earn interest, it continues to grow – without
$10/month at 9%
your child ever adding a penny! Imagine what could
happen if they continued to save! Begin at: Total at 18: Cost to Wait:

If your kids already have a savings account, you Age 10 $1,409 -

can illustrate how powerful these two concepts are by Age 12 $957 $452
applying the “Rule of 72” to their current balance and Age 14 $580 $829
interest rate! If they don’t have a savings account, now Age 17 $126 $1,283
would be a good time to get them started!
Notes: Assumes a hypothetical 9% constant rate and growth in values.
Subject to applicable taxes. Rate of return is a nominal interest rate com-
pounded on a monthly basis.

16
 5 WAYS TO CREATE A
WALL STREET MOGUL

What better way to prepare your growing kids

3
for the adult world than by guiding them through
the maze of investing? Use these simple tips to Get Diversified
navigate – and see how far they go! Jumping right into the stock market with
individual stocks may be a little too risky for
your child. Starting out with a diversified fund
1
through a mutual fund might be the best way

Start Out Slow to start building a strong portfolio while getting

An investment in a money-market account is some experience at the same time.

a great place to start out. Money markets are

short-term securities that allow users to write 4
checks against the balance.
Play It Out
However, a money market account is
Look for investment-themed games online to
not guaranteed or insured by the FDIC or
further educate your child on the ins and outs
any other government agency and though
of investing. They’re fun – and may fill any
the fund seems to preserve the value of your
learning gaps you’ve missed.
investment it is possible to lose money.

2 5

Build Confidence Go Professional

When you think your child is ready to start
Returns from these set-term investments may be
investing on his or her own, consider setting up
small, but they’re a good way to build confidence.
a minor account with a mutual fund broker.
 GIVING
BACK
B
ecoming financially responsible isn’t just
about saving or spending or investing – it’s
also about giving back to your community.
In addition to contributing to a worthy cause,
your kids will feel a sense of accomplishment and
pride when they see their money put to good use.

2
 FUN WITH FUNDRAISING
Fundraising can be a fun and profitable way to raise money for a specific cause or charity. Whether
you plan to hold a sale of some sort or sponsor an event – or even something as simple as a jar to
collect loose change – keep it simple!

Start Small and Keep It Hands-on Change Jars for Charity

Bake a batch of cookies for a school sale Keep a jar in the house for loose change and
or help your child pick out a toy for a let your kids pick the charity they want to
toy drive. support when the jar fills up.

Encourage Personal Involvement Time Is Valuable, Too

Letting your child spend their own money to Spending time with an elderly neighbor or
buy a gift for a young cancer patient will be shut-in is just as important as sending money
meaningful for both the giver and the receiver! to a cause.

CHARITY CHECKUP
Never give to a charity you don’t
Don’t Just Mail a Check to Your know about. Go online and do your
Favorite Charity research to determine which charity
Talk with your kids about what you’re doing is the best match for you – and
and why you chose that cause. ensure they’re on the level.

19
3
AGE
MATTERS
S
o, now that you know the basics, it’s time
to put all the financial concepts explored in
the previous pages into practice.
Depending on your child’s age and maturity, some
concepts may be difficult for them to understand.
Check out these age-appropriate tips to help you
present the right topics for your child.
 FINANCIAL EDUCATION

Ages 3-5 Ages 11-14

The first time your kids start asking you about money is the Middle school is an important time in your child’s financial
time to start building the foundation. The best place to start growth. They’ll be facing increasing peer pressure from their
is by explaining what exactly money is! friends, plus they’ll be bombarded by advertising from every
When you go to the store or eat out at a restaurant, conceivable source, to have the latest gadget or newest de-
show your kids what you’re doing so they see how money signer jeans. They usually have more cash at this point, too.
“works.” When you write a check or use the ATM at your All of this makes your job even more complicated!
bank, talk to your child about the different ways to use The key is to keep reinforcing the ideas of saving (paying
money. Explain that a check functions just like cash – as long themselves first), budgeting and planning expenses! After
as you have money in your account. Make every outing a all, with some smart shopping, your preteen just might be
learning adventure! able to get everything on his or her wish list!

Keep It Concrete Take Stock & Foster Responsibility

• Use cash around preschoolers – credit cards are • Eleven is a great age for a basic introduction to the
too abstract. stock market and the concept of compound interest.
• Let them collect coins in a clear container so they see • At 12, encourage them to look for extra money outside
the money. the house, such as mowing lawns, baby-sitting, etc.
• Show them that five pennies equal a nickel, etc. • Consider opening a checking account for him or her and
extending weekly allowance to twice a month.
• Play age-appropriate games that build math skills.
• Depending on how responsible you feel your kids
Ages 6-10 are, introduce them to credit with a debit or pre-paid
credit card.
When your child enters school you can start giving them
a weekly allowance and teaching them the basics of sav- Ages 15-18
ings and budgeting. Letting them have their own money to
College may be looming in the future and you don’t want to
“practice” with is the perfect way to build on the financial
send them out on their own without a good
foundation you’ve already laid.
financial foundation!
Allowances & Budgets
Focus on the Future
• Age six is the perfect time to start a weekly allowance.
• At 15, if your child has a part-time job, discuss tax-
• Take your child shopping with you to give them hands-
related issues.
on experience making need vs. want decisions.
• If your teen has a part-time job, encourage them to save
• By age nine, children can grasp the basics of budgeting.
a portion of their paycheck for college expenses.
• Open a savings account for them at your bank if you
• Reinforce the negative power of compound interest on
haven’t already.
credit card purchases!
• Emphasize the importance of a budget – and learning
from your mistakes.

21
 GROWING
UP MONEY
SMART
Y
our children are faced with money choices every day –
from small choices like buying a candy bar to larger ones
such as saving for college. While you can’t control all
the outside influences trying to affect their decisions, you CAN
prepare them to make the RIGHT decisions.
Remember, your children will model your behavior so
it’s important to start out with the right financial attitudes
first and then pass along those healthy attitudes to the next
generation.
YOU can do it! YOU can raise money smart kids…
kids who are ready to grow into adulthood with all the tools
they’ll need to make their way through the maze of financial
responsibilities they will all too soon encounter!

6
7
You should carefully consider a mutual fund’s risk, fees, charges and expenses before investing. The prospectus and/or summary prospectus contains this
and other information about mutual funds. You should read and carefully consider this information before investing. Prospectuses are available from your PFS
Investments Inc. registered representative.

In the U.S., securities and advisory services are offered by PFS Investments Inc., 1 Primerica Parkway, Duluth, Georgia 30099-0001, member FINRA [www.finra.
org]. Primerica and PFS Investments Inc. are affiliated companies. PFS Investments Inc. conducts its advisory business under the name Primerica Advisors.

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