A three-part series on guiding kids from kindergarten through high school.
Chances are, there was a lot you didn't know about finances when you reached adulthood. Your ignorance may have cost you money in the form of an overdrawn checking account where the bank gleefully heaped on additional fees, or credit card debt at interest rates that would have qualified as criminal usury in the Middle Ages. You may have overextended yourself when buying a car, been mystified by the APR on your home mortgage, or you may be one of those unfortunate people who ran into a financial predator who sells high-commission investments, annuities or unnecessary life insurance coverage.
You don't want your children (or grandchildren) to learn these lessons the hard way. What can you do to help them master the complexities of this mysterious thing we call "money?"
The bad news is that you'll have to home-school this curriculum, since primary and secondary schools inexplicably don't teach basic money skills, and the only way your children will be taught about money in college is if they decide to take financial planning courses that are taught at a fraction of all the colleges and universities in the U.S.
Just like any other subject, a money curriculum provides information and teaching that is appropriate to the age. You're not going to be able to teach a seven-year-old about graduated income tax rates or the wonders of compound interest, and she'll have no idea what you mean if you tell her that your home cost $500,000. So we’ve broken this down into three, age-appropriate guides for developing money mastery in your children.
Part 1: Ages 6-10
Some experts say that your child's financial education should begin as soon as he or she is old enough not to eat the money. But money is fundamentally about mathematics; when your children can add and subtract, they can start the money learning process.
Step one: Introduce your children to coins first. Explain the value of coins in terms they can understand–how many are required to buy gum, a candy bar or something else they ask you for as you shepherd them past that dreaded candy display at the checkout counter. Help them learn to make change and convert one kind of coin into others. Later, you can do the same for bills.
Step two: Begin giving your children an allowance, and as time goes on, draw an ever-clearer link between chores and allowance. When children make their beds, put their clothes in the laundry and take their dishes off the table, they recognize that their weekly stipend is earned rather than doled out. (This is an area where experts disagree, because of the possibility that a child will decide not to make her bed and then challenge you to dock some hard-to-calculate percent of her allowance. But a compromise is to require that the chores be done.) Pay extra for additional jobs your children perform.
Step three: Encourage your children to save some or all of their allowance in a piggy bank. They'll begin to see how the coins accumulate, and how that process can eventually deliver enough for them to buy something they might desire. This is the fundamental essence of saving. Interestingly, research has shown that some children are distrustful of a piggy bank if they can't see where the money went. The state-of-the-art in piggy banks is the Money Savvy Pig, a see-through piggy bank with four slots: save, spend, donate, and invest. The goal is to help kids learn that money isn't just accumulated to buy things.
Step four: Empower your children to manage their own money. Let them decide how their allowance will be used, and let them make mistakes. If they make impulse purchases, and later want something that costs more than they currently have, that becomes a teachable moment.
Step five: Incorporate your money mastery teaching into your everyday activities. In the early years, use your trips to the grocery store to explain prices. When you go to the ATM, you can explain that money doesn't actually come from a machine. Later, when you open bills, you can talk about payment for services like the phone and cable TV.
Step six: Use the power of online gaming for good rather than time-wasting evil. There are online websites and even games that families can use to get the conversation going such as Thegreatpiggybankadventure. Other examples include Feedthepig.org, kids.gov, www.doughmain.com and TheMint.org/kids. PNC Bank and Sesame Street teamed up to create fun videos and games that teach kids about money: http://www.sesamestreet.org/parents/topicsandactivities/toolkits/save. MassMutual, meanwhile, has developed Save! The Game, an app for the ipad and iPhone that teaches kids the difference between wants and needs.
When they get to middle school, they’ll be ready for more financial responsibility. Find out more in Part 2 of our series for Ages 11-13.