Money Doesn't Grow on Trees-and More

In today's society, children are bombarded with messages of materialism, while hearing little meaningful information about money. And simply telling them that money doesn't grow on trees isn't enough. The only way to stop the "financial illiteracy" suffered by many adults in our country is to begin teaching children at an early age about money.

Preschool-age children can learn about money by handling and identifying coins. You can play different games with the coins (such as counting and stacking) while you explain their different values. Children can begin to use and understand money by putting coins into parking meters and paying the cashier at the supermarket.

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As children grow, it's important that they learn to appreciate what different amounts of money can buy. Good exercises in this lesson include comparing the cost of ice cream from the ice cream truck with the cost of a gallon of ice cream from the grocery store and asking children to work within a given budget when dining out. Challenge your kids to save electricity to reduce the utility bill, and then share the savings with them.

To help your children understand the relationship between work and money, encourage older kids to undertake small jobs in your neighborhood (eg, babysitting, dog walking, and mowing), or write a contract stating that certain work performed around the house will pay a certain amount of money. Initiate discussions with your kids and help them imagine what different types of jobs are like, what kind of education is required for different jobs, and what the tradeoffs are between time, money, and personal satisfaction.

It's very important to allow your children to make their own choices—and, alas, mistakes—when it comes to spending money. Even younger children can understand that they have enough money for one treat at the store or three rides at the fair. Let them decide which to choose; if they make a mistake, they will learn from it and be better prepared next time. Older kids can work within a given budget when shopping for clothes; make a note of what they need, discuss what they want, comparison shop, and let them choose.

Even children in college can be given a budget in the beginning of their college years and then given any money left over at graduation. Talk to your children about some of the choices you've made so that they can appreciate what kinds of tradeoffs go into making financial decisions.

Finally, imparting a sense of saving and investing is critical in helping to teach children about the value of money. Keeping a "rainy day jar" to which everyone can contribute helps teach the concept of saving in a fun way. Older children can learn the ins and outs of investing if you help them set up a mock portfolio of stocks or mutual funds and monitor their progress, showing them your 401(k) or IRA statement and explaining the allocations. Consider purchasing stock in a company that offers shareholder perks of interest to children (eg, the Wrigley Company sends a 100-stick box of gum to shareholders every year).

Taking these steps with your children will help them better understand the value of money, as well as give them a sense of accomplishment and independence. Note: For books, board games, and financial learning aids for children, contact the Institute of Consumer Financial Education (619-239-1401; www.icfe.info).