Bankers nationwide are celebrating National Teach Children to Save Day on Tuesday, April 21. Founded by the American Bankers’ Association Education Foundation, the day is dedicated to educating youth about the importance of saving.

Parents, Here are Five Tips for Teaching Financial Responsibility

1. Value of Saving – Teach children why you save and why they should save by using everyday examples like buying groceries. Illustrate how savings can grow by collecting money in a jar or container.
2. Needs vs. Wants – Explain the differences between needs and wants and how to prioritize spending. Use examples like toothpaste vs. another video game.
3. Allowance – Consider an allowance to teach how money is earned. Provide an allowance in a way that children can save part of it and spend part of it (for example, if an allowance is $5, give five one dollar bills so some can be saved and some spent).
4. Set a Goal – Setting a goal for savings or to buy a desired item will help teach a child to be responsible for him/herself and reinforce the feeling of accomplishment when the goal is reached.
5. Open a Savings Account – Establish regular saving habits that will last a lifetime by opening a savings account with your child.

CHECK OUT THE LINKS on our sidebar for lots of fun resources to help your children save!

What Causes the Stock Market To Go Up and Down?

Have you ever heard of supply and demand? When there is a lot of something – a large supply – the price goes down. When there is a small supply of something, the price goes up.

Let’s say when it’s time to eat, there’s only one sandwich and everyone wants it. The price would go up. The person with the most money will be able to buy it. But when there are lots of sandwiches the price goes down. It’s the same with stock. If a lot of people want a certain stock – and there are a limited number of shares, the price goes up. If a lot of people want to sell a stock, and not too many who want to buy it, the price goes down, because the supply will be greater. When everyone wants to buy a stock, the price goes up.

The other thing that affects the price of stock is emotion. When people are very excited about the market and they want to make a more than anyone else and they are willing o do anything – that’s when the price of stock goes really high. That’s called greed. When people are greedy they’re willing to do anything they can. But when people are scared, what do they do? They hide. When people are scared and they sell their stock and put their money in the bank, they are sort of hiding. What’s happening in our markets today? People are scared. There’s a lot of money sitting in the bank.

What’s the Difference between Stocks and Bonds?

Stocks are ownership. When you own stock, you own part of a company. Bonds are “loanership”. You’re loaning money to a business or the government. In other words, a bond is debt.

So, when you buy a bond, you are lending money to a company. When you own a share of stock, you own a part of a company.

Let’s say you own a share of stock in a company that operates an amusement park. The company sells stock because they want to grow the company and they need to get capital, which is the money they can use to invest in growing the company. Now, if you own some of that stock, you own part of the company.

COACH'S BOOK RECOMMENDATIONS

Kids Ages 6 - 11

Money Savvy Pig

By Susan Beacham

This is a small plastic pig that resembles a traditional piggy bank with a twist -- instead of one slot, there are four marked "save," "spend," "donate" and "invest."

You can also purchase a workbook with the Money Savvy Pig that allows children to color the pages while they learn important concepts such as interest on savings, goal-setting, smart spending, long-term investing and entrepreneurship.

The Money Savvy Pig is the perfect introduction to personal finance.

The Kids Allowance Book

By Amy Nathan and Debbie Palen

This charming book tells children how to get an allowance and how to save and spend it wisely. The book includes responses of 166 kids to questions about the pros and cons of allowances.

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Tweens and Teens
Personal Management

By Brent Neiser

Educators too often overlook personal finance basics when teaching life lessons to preteens and teens. As a result of the absence of financial education in our schools, young people with little or no income wind up in debt. Personal Management, is an antidote to this oversight.

This booklet has been used for many years to help Boy Scouts earn their "personal management" merit badge. However, you don't have to be a Boy Scout to benefit from the practical wisdom found here.

The booklet helps young people learn about saving, spending and investing as well as how to create a budget, use credit and track their spending.

Cash Cache

By Susan Beacham

This personal finance organizer is intended to help teens learn the basics of personal finance: saving, investing, credit cards, earning money, paying taxes, spending and donating. It also includes basic information on the stock market, setting goals, budgeting and bank accounts.

Teens can learn basic personal finance lingo by using the glossary of financial terms.

The Money Book for the Young, Fabulous & Broke

By Suze Orman

People in their 20s and 30s often have big expenses and enormous debt. As a result, they have little leftover for savings. Orman's book tailors advice to this generation's situation by focusing on credit cards, college loans, income and opportunities for saving.

Teens who recently graduated from college and read this book liked the tone and thought it made sense. They said they were particularly impressed with discussions about how easy it is to fall into debt and the dangers of owning too many credit cards.

Saving for Retirement Without Living Like a Pauper or Winning the Lottery

By Gail MarksJarvis

This book emphasizes the importance of starting to save early. Author MarksJarvis focuses on using retirement plans to defer taxes, collect employer contributions and accumulate greater levels of retirement wealth.

Other themes in this book include the importance of managing costs and the long-term benefits of asset allocation.

An award-winning writer, Gail MarksJarvis is a long-timer personal-finance columnist, currently writing for the Chicago Tribune.

When A Company Needs Money, How Do They Get It?

When a business needs money, they can get it one of two ways. They can sell part of it – or they can borrow. Whey they sell stock, they sell part of the company. But a company may not want to give away ownership of all of the company. They may prefer for you to invest in their company as a bondholder. A bond is a promise to pay off the loan. So if they need money, they may want to borrow it – so they sell bonds – and promise to pay back the loan.

Now, let’s say the company does really well, and the value of the company increases. Does the value of your bond increase? No – because it’s just a promise to repay the loan. But if you own stock in a company, and the value of the company goes up, then your stock is worth more.

What is Compound Interest?

There are two kinds of interest – simple interest and compound interest. You probably know how simple interest works.

For example: If I have $10,000 and I earn 6% interest, how much money do I earn after one year?
Answer: $600

If I earned 6% every year for 12 years how much money would I have earned in interest?
Answer: $600 per year x 12 years = $7200. So adding that to my initial investment, I’d have a total of $17,200

Compounding Interest
If I have $10,000 and I earn 6% compounding interest, how much money do I earn in interest?

Answer: Well, if I apply the “Rule of 72” (which we discussed in our last post) 72 divided by 6 (the rate of interest) = 12. That means my total money will double in 12 years to $20,000.

So why is the total amount of money higher with compounding interest than with simple interest ($20,000 compared with $17,200) if they both receive 6% interest?
Answer: With simple interest I earn the same amount of interest each year on the original $10,000. So every year I only receive $600. With compounding interest, I add $600 (interest) to my original $10,000. Then the next year I earn 6% on $10,600 which is $636. When added together I have $11,236. The following year I earn 6% on that amount

End of year 1 - $600 + $10,000 = $10,600
End of year 2 – 6% x $10,600 = $636. $636 + $10,600 = $11,236
End of year 3 – 6% x $11,236 - $674.16. $647.16 + $11,236 = $11,883.16
End of year 4 – 6% x $11,883.16 - $712.99. $712.99 + $11,883.16 = $12,596.15
End of year 5 – 6% x $12.596.15 - $755.77. $744.77 + $12.596.15 = $13,391.92

Do you see how this is calculated? Dan you continue to do the math?

The Rule of 72 is Cool!

When people invest money, they do it so they can make money. That’s called "getting a return on your investment.” Sometimes they want to know how long it will take to double their investment. To do this, we use the Rule of 72.

Take 72 and divide it by the amount of return on your investment. That is the number of years it will take to double your original investment.

For example: Ten year-old Keanu buys a bond for $10,000 and earns 6%. 72 divided by 6 = 12. So every 12 years, Keanu’s money doubles. When he is 22, he will have $20,000.

What if Keanu leaves that money alone until he retires at 60 years old? His money will double 4 times by then and he will have $160,000.

Let’s say Keanu used that original $10,000 and bought a stock that earns 12% return (72 divided by 12 = 6) he will have $20,000 in 6 years when he is 16. If he leaves that money alone until he retires, it will double 8 times and he will have over $2.5 million when he is 60 years old.

The Rule of 72 is based on a principle called “compound interest” (return), which is sometimes called “The 8th Wonder of the World”! I’ll explain more about compound return in my next post.

Here’s something VERY important to remember. Just because things happened in the past, doesn’t guarantee they’ll happen in the future. So we use historical return rates as an example. It doesn’t mean that if you invest in the stock market today, that you will receive 12% return on your investment every year. Also, when investing in stocks it is possible to lose money, so that the value of the stock could be less than the original investment.