Our kids are being short-changed when it comes to being taught money smarts.

Today’s schools lack the funding to teach financial literacy as a standard part of the curriculum. At the same time, our high-tech culture of convenience and consumption teaches children lessons they would be better off not learning. 

Kids see plastic as free money, not as debt. Credit card limits work less as restraint and more as invitation to spend up to the limit amount. Gift cards, Groupons, and digitized icons on smartphones are now the new currency, but unlike bills and coins, they are minted for one purpose only: spending. Put a $25 Gap card in an envelope for your niece or nephew, and you can be sure the card will be taken to the clothing store, and not put in a savings account.

Lessons about financial responsibility must begin in the home. Most children learn about personal finance by way of “money see, money do.” The way parents or caretakers handle money, how they talk (or don’t talk) about it, and the emotions they express or exhibit around it all become inputs to children’s eventual relationship with money. 

So what steps can parents take to raise a child with good financial sense? Start by thinking carefully about what financial responsibility would look like in your child.  Here are some ideas to get you going.

  • I want my child to respect money, but not be ruled by it.

  • I want my child to learn to be generous.

  • I want my child to use debt prudently.

  • I want my child to understand how to save and invest.

Now comes the hard part:  how would you score yourself on these measures?  Until you stand tall financially, it’s much harder to get your kids to straighten up and take notice. But even if you’re not a paragon of proper personal finance, there are things you can do to help move your child’s financial education forward. Here are four keys to get you started.

  1. Look for opportunities in your day to turn routine money transactions into teachable moments for your kids. For example, take your child inside the bank instead of driving by the ATM. Talk about the role of banks as places to keep money safe and earn interest. With an older child, explain why you prefer your chosen bank or credit union to another. Does it provide more interest, lower fees, or more convenience? Talk about the money you are depositing or withdrawing, where the deposit came from, and when and how you plan to use the funds withdrawn.

  2. Get your kids involved in household money management. Enlist their help in paying the bills. Even a very young child can open the envelopes: If they can read, they can identify what the bills are for, and circle the amounts payable and the due dates. This gives them an appreciation of routine living expenses. They may not realize, for example, that we must pay for services like water or condo membership.  Show them what is involved in writing out a check or entering a bill payment online.

  3. Make money lessons fun and purposeful. Have them prepare a grocery list, and then check off the items as they find them in the store. Show them how to comparison shop, checking unit prices of similar items and deciding which is better. Share a portion of the “savings” with them, to be put toward something of their choice. For older kids, give them a “budget” for a component of the family vacation, such as lunches out, sightseeing, or souvenirs. Invest them in the process, and you may be surprised and pleased with their creativity and financial decision-making.

  4. Stress the fundamentals. Most personal financial decisions require an understanding of just two essential principles: the concept of “opportunity cost” and the relationship between risk and return. Without a mastery of these concepts, all the education in the world on saving strategies, investing opportunities or spending management is not necessarily going to translate into smart financial decisions.

Both opportunity cost and the risk/return tradeoff are principles of balance. They are based on the truth that every financial decision has an upside and a downside. Your daughter choses to buy a pair of jeans at the “cost” of not being able to buy those fancy sneakers. Your son decides he wants to be a professional football player with a seven-figure income, without considering the risk of physical injury or the high probability that he’d only be drawing such an income for a short time.

Kids, as well as financially immature adults, tend to think about money one-dimensionally. They focus on what they can get with money, and not on what they may give up or risk in the process. Getting them to take a more balanced view, weighing benefits against costs, is an important foundational step that will serve them well into their future.

Consider this final thought: As parents, we have aspirations for our kids. We want them to get higher education so that they can get jobs with good incomes. But unless we go further, and provide them with the financial literacy tools to be able to manage that good income, all the investment and sacrifice to get them educated may be for naught. 
Helping your kids learn simple money lessons early on can go a long way toward fostering their financial success in the future.