Yes, You Can Rai e Financially Aware Kids Helping Your Kids and Grandkids Appreciate the Value of a Dollar This information is for educational purposes only and is not intended as investment advice. ACI-0810-2603 Non-FDIC Insured May Lose Value No Bank Guarantee American Century Investment Services, Inc. Distributor 2014 American Century Investments Proprietary Holdings, Inc. All rights reserved.
Agenda Why Is This Important? How Can You Raise Financially Aware Kids? Understanding Allowance Money Management Examples and Illustrations 2
Why Is This Important? It is important that your children learn what they can do with money early in life so they will apply the lessons learned at home as they face the real world in future years. - James E. Stowers Jr., Founder of American Century Investments 3
Your Children and Grandchildren Are Targets By the time they are five they will have been hit with 30,000 advertisements Turning your curious child or grandchild into an insatiable consumer Children s influence on the economy: $188 billion in direct influence $300 billion of parental spending influence $25 billion of their own money 4
Teach Your Children and Grandchildren Well Whether you know it or not, a survey of high school students revealed that 88% of what they learned about money came from their parents. What lessons are your financial discussions and behavior teaching your kids/grandkids? What do your kids/grandkids need to know to be financially successful and strike a financial balance? Ways to Earn Money Saving for the Short-Term Investing for the Long-Term Spending Wisely 5
Your Role as CFP (Chief Financial Parent) Whether you are thrifty or not, a business owner or employee, you are your child s CFP Chief Financial Parent Kids whose parents or grandparents talk to them about money are more likely to be savers rather than spenders. Talking about money and financial behavior is critical to successful financial education. 6
How Can You Raise Financially Aware Kids? Understanding Allowance Money Management 7
Where to Begin - Understanding Money Definition: Something generally accepted as a medium of exchange, a measure of value, or a means of payment: as a :officially coined or stamped metal currency. (Merriam-Webster Dictionary) To your children and grandchildren, money is your value system personified through your financial behavior. Are you financially living your values? Discuss money = Important Demonstrate good money behavior = VITAL 8
Where to Begin - Understanding Understand your own beliefs about money What money principles did you learn growing up? Did you experience hardships or success growing up? What stories did your parents and grandparents tell you? What did your parents actions show you about money? Did it feel as though your parents barely made ends meet or was there always enough to go around and then some? 9
Where to Begin - Understanding It begins with having The Talk Talk to your kids/grandkids as early as possible younger is better Act casually. Leave money in its proper place. Know your audience. Above all make it a dialogue, not a lecture. 10
Understand a Child s Needs and Wants Ask questions to better understand the child s perspective What you think is a want could be a very real need for your child You may think Your child may think Stuffed Animal Toy Comfort Designer Clothing Cheaper alternatives Peer acceptance MP3 Player Distraction to homework Safe place to focus Avoid judging their priorities Focus on the value of what they are getting and the potential opportunity cost 11
Put It Into Practice - Understanding How young is too young? Kids as young as age 3 can understand some basic concepts Bartering ( I ll give you this for this. ) Earning ( Put your toys in the box and you can watch your video. ) Saving ( Put one penny on each finger. You have five pennies. ) Investing ( When you have a penny for each finger. I ll give you one more. ) Currency (Not always money, but can be what is of highest value to a child such as TV or game time, play time, etc.) Older kids can handle greater challenges including an allowance. 12
Allowances Kids who receive an allowance tend to save more than those who do not. Common questions parents ask - Should I give an allowance? If so, when should I start? How much should it be? 13
Should I Give an Allowance? The allowance experience can provide hands-on training for a financially responsible future. Three different philosophies Allowance without expectations Unconditional, no requirements Allowance tied to specific actions Based on chores completed, grades, behavior No allowance Pay as you go to encourage development and control spending Make it a learning experience not a power struggle. 14
When Should I Start? Determine your child s allowance readiness Have an interest in wanting an allowance Should understand the value of money Count small sums of money Have a safe place where it won t be lost Understand the difference between needs & wants Willing to practice the discipline of saving 15
How Much Should it Be? Factors to consider: Child s age younger children have less need for money Why it s given if it s pay-for-work, it could be different each week Your own income it needs to work within your budget What it s for what expenses will your child be paying Entertainment School Supplies / Lunches Toys / Gifts Clothes RULE OF THUMB: $1 for each year of age per week ($12 for 12 yr old), unless expected to cover expenses such as school lunches, clothes, gas, etc. 16
Giving a Raise I need more money! Have them keep a monthly journal of spending and/or a budget plan Review it with them Did they get their money s worth? Are they still enjoying it or is the excitement gone? Would they rather have the money back? Did they really need it? Could they have bought it somewhere else for less? Listen carefully Get feedback from other parents Do what you think is right and supports the money values you want your child to embrace 17
Setting Expectations Money Management Involve your children/grandchildren in your finances Explain Budgets Income Savings / Investing Expenses / Spending Plan Discuss How you earn money What you need to do with your money What you want to do with your money How you stay in control of your life Show Demonstrate paying yourself first through 401(k)s, regular investing, 529 College Savings Plans, etc. 18
Financial Goal Setting Money Management Having a goal and a plan means personal control Possible saving goals Major purchase car, video game console Special event prom, senior trip Personal growth college, summer camp 19
Keeping Goals on Track Money Management Approach to staying on track 1. What do you want to do? 2. If you could only do one thing, which one would it be? 3. What changes might enable you to achieve your goals? Extra odd jobs? Changing spending habits? Saving more? 4. Make decisions that support your primary goal! Will using my money this way get me closer or further from my goal? Decisions regarding how you spend your money are easier when you have a plan. 20
Additional Opportunities Money Management Turn earning into learning by giving kids the chance to: Discover their passion and special abilities Recognize the relationship between time and money Think creatively and problem solve Increase their independence Ways to earn more Chores around the house Helping neighbors Part-time job after school 21
Put Your Money to Work Money Management Four keys to accumulating wealth Start as early as possible Save on a regular basis Begin with the largest sum possible Reach for the highest rate of return that s acceptable for you Compounding Takes into consideration time and rate-of-return Nature is a wonderful teacher Money, properly cared for over time will grow and multiply 22
Think Before They Spend Money Management Questions to ask before the purchase: Is this a need or a want? How many week s allowance (or hours worked) does this cost? Have I found the best price? Am I getting good value for the money? Can I negotiate a better deal? Remind them: You can always spend what you save, but you can never save what you spend. - James E. Stowers Jr., Founder, American Century Investments 23
Examples and Illustrations 24
Which Would You Rather Have? A check for $1 million, or A penny that doubles in value every day for 30 days? 25
Take the Daily Double The Amazing Power of Compounding $6,000,000 $5,000,000 $4,000,000 Value $3,000,000 $2,000,000 $1,000,000 $0 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 Days 26
Take the Daily Double The Amazing Power of Compounding $6,000,000 $5,000,000 $4,000,000 Value $3,000,000 $2,000,000 $1,000,000 $0 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 Days 27
When Could An Investment Double in Value? The Rule of 72 Rule of 72 is a mathematical formula which calculates approximately how many years it will take for an investment to double with an annual compounding interest rate. 72 interest rate = years until investment doubles $500 earning 8% interest could be worth $1,000 in 9 years 72 8% interest rate = 9 years 28
Helping Them Understand Why It s Important In the 20th century, the dollar lost 95% of its value What a dollar used to buy in 1900, now costs more than $21 today Bureau of Census and Bureau of Labor Statistics 1900 2000 29
Additional Learning Educational programs geared toward children and their interests Clip and share articles from financial magazines Help your children/grandchildren connect with people they admire Take your children/grandchildren to work Encourage them to talk to others including relatives Visit YesYouCanOnline.info 30
American Century Investments Performance focus for 50+ years Pure play business model Privately controlled and independent Profits with a purpose You should consider the fund s investment objectives, risks, and charges and expenses carefully before you invest. The fund s prospectus, which can be obtained by calling 1-800-345-6488 (or by visiting www.americancentury.com/ipro), contains this and other information about the fund, and should be read carefully before investing or sending money. American Century Investment Services, Inc., Distributor 2014 American Century Proprietary Holdings, Inc. All rights reserved. The contents of this American Century Investments presentation are protected by applicable copyright and trademark laws. No permission is granted to copy, redistribute, modify, post or frame any text, graphics, images, trademarks, designs or logos. 31