Teaching Your Children About Money

IT'S never too early to begin teaching children about money. Some experts say that discussion should begin even before they are born. Before the child arrives, sit down with your significant other and talk about the lessons you want to share. What financial mistakes did you make? How can your children avoid those pitfalls? How can you begin planning for their future? One expert says money conversations are so important that you should even share positive messages prenatally.

"Parents should start talking to their children while they're in the womb," says Fran Harris, author of In the Black: The African-American Guide to Raising Financially Responsible Children. "We pass on our emotional state concerning money issues as much as we pass on everything else to our kids. Talk to them while they're in there. Tell them, `You deserve prosperity. God will bless you.'"

Kelvin Boston, author of Smart Money Moves for African Americans, says some Black families shy away from money discussions even though ignorance of money-management techniques may have contributed to a cycle of debt they battle today.

"One of the biggest problems we've had in dealing with finances is that [our people] don't teach children about money," he says. "We didn't talk about it at the table, so children have wrong ideas about how we live. A lot of youngsters, for example, might go into a house thinking God turned on the lights and pays for the heat and TV. The sooner we get around to talking about finances, the sooner they will understand it's not just important to have access to money but to manage it wisely."

As young as 2 or 3, children can begin receiving financial lessons, experts say. You can start with simple money identification. Spread out some change and have them pick out the quarter, dime or nickel. When you go grocery shopping, take your children with you. Talk to them about why you're choosing one brand over another. "Even if they can't verbalize their thoughts," Harris says, "kids are noticing what's going on."

Teach them the value of saving.

"Get your children piggy banks, maybe three of them," says Boston, host of a weekly PBS series called Moneywise, "one for savings, one for short-term things such as Christmas gifts and holidays and going back to school, and another for giving. That will teach them not just to put aside a few dollars and pennies but that different types of savings do different things."

For older children, giving an allowance is a good way to show that money must be earned. Reward them for keeping up with expected chores such as cleaning their room and for going beyond the routine.

"I love hands-on experience," says Harris, author of two upcoming books on the Women's National Basketball Association (WNBA). "I would recommend giving kids a household job--whether it's taking out the trash, washing the tires or painting the shed--so that kids understand when you do certain jobs, you will be paid. You can also use their allowance to introduce them to the concept of a pay period and teach them arithmetic."

Early adolescence (think 9 or 10), experts say, is a good time for parents to teach children about bank accounts. Tell them about the savings account you have established for their future. Let them set up a savings account of their own. Bankbooks are a great way to reinforce lessons about addition and subtraction.

Young adults should begin to learn the realities of credit. College students and even teenagers are often targets for merchants and credit card companies, and many young adults create more debt than they can handle. Teach your children to be financially responsible before they learn the hard way. "I remember having my first department store account [while I was] in junior high school," says Boston. "I abused it and my mother ended up paying for it. That's not necessary."

Start kids off with a debit card that allows withdrawal of money for purchases from a checking account. Perhaps you will match what they contribute to the fund. Once that money is gone, that's it until they provide more. If you give them a credit card for emergencies, take time to explain the virtues and downfalls of abusing credit instruments. Encourage your children to read the application and the fine print, help them understand the consequences of minimum payments and annual percentage rates (APRs).

The summer before college, experts say, youngsters should work to help pay for their education. Even if you plan to pick up the tuition, let them pay for something--books, clothes, other necessary items. "We give our children so much because we don't want them to struggle," Boston says. "But sometimes in giving, we take away their economic prosperity. They don't understand where money comes from. Later, when they have to generate their own income, they are handicapped. It's better to teach them at home than let them find out in the real world."

Perhaps the most important lesson you can give your children is modeling responsible financial behavior yourself. Pay your bills on time. Save a portion of your income. Invest in stocks and mutual funds. Discuss your good habits with your children.