It's never too early to give kids the skills to make their own money—and manage it.
When Maya Penn of Atlanta, was 8, her handmade headbands prompted strangers to ask where they could buy one. Since there was no local store she could recommend, "I decided to start my own company," Penn says. The result was Maya's Ideas, a business that makes eco-friendly clothing and accessories. Not only is Penn, now 14, unleashing her creativity every day, but she also sits on top of a $75,000-a-year enterprise while learning a host of financial lessons in the process. "Entrepreneurship and financial literacy go hand in hand," says Kenrya Rankin, author of Start It Up: The Complete Teen Business Guide to Turning Your Passions Into Pay (Zest Books). "It can teach a child everything from how to open a bank account to how to save money and raise capital."
Such lessons are critical. And Black children may be more inclined to entrepreneurship than others. A recent survey by Operation HOPE and Gallup found that 50 percent of minority students plan to one day start their own businesses compared with 37 percent of White students. It also may be easier than ever for kids to go into business, thanks to technology and the Internet, says Tanya J. Hamilton, founder of Independent Youth, a St. Louis-based organization that teaches teens entrepreneurship. "The barrier to entry is a lot lower. If a kid is selling T-shirts, they can build a Web site."
BUILD THEIR BUSINESS SAVVY
An economy still on the recovery means earning money may not be as easy for kids as it used to be. Not only are they competing with those out of work, but "traditional businesses for kids like mowing lawns and shoveling snow are now outsourced to small businesses," says Susan Beacham, CEO of financial education provider Money Savvy Generation. To better compete, youngsters should put a new spin on an old idea—think gluten-free cupcakes or fresh lemon-and lime-infused water. Other ways to build your child's business acumen:
Give lessons in lending. When 16-year-old Dasia Dawson of Willingboro, New Jersey, started her jewelry business, Tutu Luv Me, a lip gloss-filled charm collection, she received emotional and financial support from her parents, but it came at a cost. "We had to tell her you don't get paid from a business overnight but you do have to pay off these loans," says Dawson's mother, Shean. If a business requires an up-front investment, provide the loan with the understanding that your kids will pay it back with interest once they make a profit, suggests Neale S. Godfrey, author of Money Doesn't Grow on Trees: A Parent's Guide to Raising Financially Responsible Children (Touchstone).
Lead by example. Both of Penn's parents have had either full-time or side businesses and they shared those experiences with their daughter. "Both of us are entrepreneurial. It's something that Maya has seen us do and was interested in doing herself, so it wasn't really far-fetched when she said, 'Hey, Mom, I really want to start selling some of my headbands on Etsy,' " says her father, John Penn. Teach the virtues of business ownership by having your child read Rich Dad Poor Dad for Teens: The Secrets About Money—That You Don't Learn in School! (Plata Publishing).
Make planning a priority. A business plan helps kids understand the costs involved with the venture, a lesson that will carry over into other financial habits, Rankin says. Prompt your teen to download a kid-friendly template at teachingkidsbusiness.com/business-plan-templates.htm.
TURN EARNERS INTO SAVERS
When 16-year-olds Brandon Iverson and Jordan Williams decided two years ago to start Making Money for Teens, a business that teaches other kids how to be entrepreneurs, their parents gave them $60 in startup cash to develop books and CDs. Since then the business has flourished, making $5,000 in book sales last year. While some teens might be tempted to spend their profits on video games, the teen entrepreneurs "always pay ourselves first so we can make sure that we're saving enough and then we have a portion that we put back into the business," says Williams. By making a child responsible for business-related costs, he or she learns to set short-term and long-term savings goals, which can lead to lifelong financial security. Other ways to encourage kids to save:
Visualize savings goals together. Find or draw pictures of something each of you wants or needs a month from now, says Beacham, and post them where everyone can see. Track each other's progress throughout the month by posting achievements on piggymojo.com. "Because you're doing it too, it models the behavior and raises the importance of the saving process in your child's eyes," says Beacham.
Establish a set percentage for savings. Iverson and Williams save 50 percent of their profits, and invest 25 percent in their business. To help your child get into the saving habit, come up with a portion of earnings that will automatically be deposited into a savings account. For added incentive, tell your child, "For every dollar you save, I'll match it," Beacham adds. Beacham's Money Savvy Pig, available at msgen.com, helps kids track their savings.
Teach kids about Uncle Sam. If a child generates net earnings of $400 or more a year, he or she will be subject to self-employment taxes, says Genevia Gee Fulbright, CPA, president of Durham, North Carolina-based accounting firm Fulbright & Fulbright. Get your teen used to putting a little aside for taxes and get tips from the federal government on explaining this complicated subject at kids.usa.gov/grown-ups/lesson-plans/money/explaining-taxes-to-kids/index.shtml.
Let kids be hands-on with the finances, and encourage them to share the wealth with others. Hamilton advises having your child create a simple spreadsheet tracking the business's income and expenses; doing so gives them a greater understanding of where the business's profits are going. Earning a salary can also teach a young entrepreneur to make his money stretch and leave enough for other goals. Iverson and Williams, for example, take 25 percent of their profits as a salary. And don't forget to impart lessons in giving back. Some ideas:
Validate their chosen charities. Encourage kids to give their time, talent and money to causes that resonate with them. Then, make a family donation as well. "Doing so encourages and rewards their actions," says Beacham. For Penn, starting a company was not just about making money, but also about doing her part to improve the world. "I knew when I started my business that all items had to be eco-friendly and 10 percent of the profits I made went to local and global charities," she says.
Look for nonfinancial ways to make a difference. Money isn't the only way. "My parents instilled in me at a very young age about giving back and being a very good steward of the environment," says Penn, who takes extra time to research organic materials, nontoxic paint and natural fruit and vegetable dyes in order to make her products as eco-friendly as possible. Have teens find ways their businesses can give back at yeskidzcan.com.
This article was featured in the July issue of ESSENCE, on newsstands now.