Money management for children

When high schoolers are asked where they've learned about money, most say "at home." How good are the lessons at your house? To help kids learn to handle money, parents have to set a good example and make use of appropriate transactions to explain their behaviour. From paying bills to using credit cards - the day is filled with opportunities for parents to initiate conversations about managing finances.

Parents have more influence than they realize when it comes to helping their kids make smart money decisions. It's never too early to get started -- even today's preschoolers know about money. They can absorb many lessons about money and its uses even before they get to the impressionable teenage years.

In 2006, teens spent $195 billion. Although they have proven they can consume, their understanding of money is severely limited. Every other year, Jump$tart Coalition for Personal Financial Literacy tests the nation's 12th graders on the basics of personal finance. In test after test, students have averaged a failing grade.

The Jump$tart scores are another indication that children need to learn about managing money. Parents can start the lessons early, which can build on each other. Even the most mundane activities provide an opportunity for short, but meaningful, money lessons. Children can help with the grocery shopping, and get an idea of the cost of their favourite items. A trip down the snack aisle may spark a lesson about brand name versus generic prices.

Here are a few ideas to help families with money conversations:

Parents can pledge to match any money a child saves. Every two weeks, parent and child can sit down and count the savings to see that money grows and that saving can be fun.

Here's a more effective idea than a slotted piggy bank. Using four "banks", children can separate their money by goals: a bank for spending, saving, investing, and for donating. It's as easy as finding four plastic jars and labelling them. Younger kids can decorate the jars with pictures to depict the goal of each bank.

Parents should try to show youngsters ways to stretch their dollars, such as choosing alternatives to designer brands, buying on sale and not on impulse, judging quality, recognizing gimmicks, and making wise decisions.

Parents who don't head to the mall for every big sale demonstrate the difference between needs and wants. Parents who explain why they cannot buy that new flat-screen television introduce the topic of thoughtful spending. The lesson can then be taken to the next level - unplanned or impulse purchases undermine the family budget.

Bill paying is a great time to discuss the cost of living. A parent chooses a group of bills to be paid. Using cash or play money, the parent stacks singles, fives, tens, and twenties on the kitchen table to pay the bills. As each bill is paid, the parent removes money from the stacks and keeps a running total. This exercise makes the point visually and dramatically.

Lessons in money management don't need to be complex. By keeping it simple, children can reap the rewards of being money smart - a practice that will pay dividends for years to come.