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Teaching Kids About Money

November 04, 2010
by Jen O'Neill
Saving money is vital in this tough economy, and there's no time like the present to start teaching your kids about financial responsibility. With these tips, becoming financially literate can be child’s play.

Return on Investment, Kid Style

George Orwell summed it up well when he said, “Each generation imagines itself to be more intelligent than the one that went before it, and wiser than the one that comes after it.” With the financial crisis at the forefront of the national consciousness, now might be a good time to speak with your kids about money.

“You would never wait until age 17 to teach children how to brush their teeth. So why wait until they go to college to teach money management?” wonders Susan Beacham, CEO of Money Savvy Generation, a producer of money management tools for kids. Beacham promotes a “womb to the tomb” financial education, where learning about money is a lifelong process.

To instill a fiscal compass in kids, parents might need to get comfortable using the word “no.” According to Beachman, “Saying ‘no’ gives kids the opportunity to creatively plan how to accomplish the request on their own. As they plan, they may even change their mind about what they wanted in the first place. Possibly they will discover they really did not want it anyway.” According to the Tampa Tribune article, “Old-Fashioned Layaway Plans Could Be A Valuable Teaching Tool,” many kids believe that luxuries are necessities. If parents simply help their kids distinguish between necessity and desire when making purchases, those kids may become grownups who avoid relying on multiple credit cards and taking out loans that acquire consumer debt.

SixWise.com’s list of the top “5 Keys to Teaching Kids Money Management Skills,” helps put kids in charge of their own money at an early age.

Parents, Cover Your Assets

Home is more than where the heart is—it’s where principles and ideals are formed. Parents are more at ease discussing sex or death with their kids than burdening them with “finance” talk. NuWire Investor advises that parents trade in talk about their personal finances for more comprehensive conversations about money. “The lives of children who understand money, its value and how to handle it will be far easier than those of children who don’t.”

How do parents teach about fiscal practices? Giving kids an allowance might be the answer. According to MSN Money, many experts consider an allowance a primary tool for teaching kids effective money management. Deputy editor at Kiplinger’s Personal Finance Janet Bodnar explains that when kids use other people’s money, they think there are unlimited resources, but when it’s their own, “they make more informed purchasing decisions.” An informed financial learning curve goes far beyond clanging of change in a piggy bank.

Show Kids the Math to Show Them the Money

Is your child experiencing difficulty in math? No worries. Apparently, if you put math in terms of money, invariably mathematical concepts will start to click with them. Why?  Dealing with money gives abstract math concepts more tangibility. Start with the basic concepts, and as they get older, move to more conceptual topics such as investing, portfolio management and trading. Since kids are natural entrepreneurs, encourage them to start their own business to add excitement. The Stock Market Game is a nonprofit organization that helps teachers, parents and kids work together to ramp up the learning experience through real-life applications, teaching critical thinking, decision making, saving and investing.

Sharing the Wealth in the Classroom

It would be in the best interest of schools to teach financial literacy to students, even before they enter high school. The Concord Monitor reports that a study by the Center for Financial Education found that only one in three teens knows how to balance a checkbook, and though many teens use credit cards, only 26 percent of them understand credit card fees and interest.

Although some schools are already making financial literacy a requirement for graduation, teachers can get a head start on making their students financially savvy. Guiding, advising, allowing kids to make mistakes and using a “consistent approach” are some of the simple but effective ways to open up the conversation about fiscal practices in the classroom. University of Minnesota has a guide to help kids of different ages make responsible financial decisions.

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