Make Your Kid Smarter About Money This Christmas

As the season of giving brushes elbows with the cabal of commercialism, we're presented with -- to borrow from the classic education vernacular -- an ideal "teaching moment."

The sad truth is that it's up to each of us to pass along practical money management skills to the next generation, because the majority of schools in the U.S. offer little or no formal education on saving, spending, and investing.

We can lament the sad state of financial education, or we can take it upon ourselves to make sure that no child is left financially illiterate. At the Fool, we're doing the latter.

This year's Foolanthropy campaign is focused on making a difference in our own backyard. And even though wallets are stretched thin in this economy, there is one thing that most of us here have in abundance: knowledge.

The best gift you can give any child
You can read more about the public charter school we've "adopted" and our plans to outfit as many of these kids as we can with the critical financial skills they need in the coming years.

We encourage you to embrace this Foolish spirit of volunteerism year-round. And the perfect place to start instilling some important money lessons is right where you are -- at home.

You don't need a formal lesson plan or permission from the school's principal to prepare your children for the realities of money in the real world. Opportunities for passing along your years of experience present themselves all the time.

7 ways to teach kids about money
1. Teach them to value every dollar. Tired of playing shopping-cart bad cop? Give your child spending power by turning the yes/no verdict over to Junior. Children who are free to spend their own money on whatever they want (provided it doesn't require gunpowder, gasoline, or a parental signature on a safety waiver) are more thoughtful and less impulsive -- after a while, at least.

2. Make dollar decisions tangible. Even adults have a hard time visualizing mounting debt or increased savings. Help your children grasp such concepts with visual cues: Illustrate important allocation lessons of short-term and long-term savings and charity with separate piggy banks for each (or a single one designed specifically for this purpose), or even with a running tally on a whiteboard.

Kids too young to understand actual currency? One Fool used Television Tickets as a simple way to teach his five- and six-year-olds the meaning of spending and saving for a better payday.

3. Pull back the curtain on retail marketing tricks. Kids don't like being told what to do. Show them that advertisers are bossier than Mom and Dad with a set of interactive lessons on common marketing mind tricks, available at pbskids.org/dontbuyit.

4. Reward savings behavior. According to sharesavespend.com, our kids today spend five times as much money as we did at the same age (adjusted for inflation). Reverse the trend by rewarding responsible use of cash. Set up a kiddie version of a 401(k) and offer to match money that they sock away for themselves and others (e.g., $0.50 for every dollar they save for themselves; a dollar-for-dollar match for money they raise for a good cause).

5. Let them pick a charity. Get online together and find a cause they can relate to. (Try charitynavigator.com and worldvision.org.) Or find a local charity and take your kids there to see firsthand how their bequests will help. Have them deliver the donations (cash, toys, clothes, etc.) themselves.

6. Get them excited about stocks, not stuff. The stock market (and the passage of time) can also reward the little ones in a big way. Engaging kids in investing pursuits is easy: Just explain that when they buy a share of stock, they become part owners of the company, not just a customer. (A seat on the board, however, may have to wait until after they're old enough to drive.) Every moment of every day, they're presented with investment opportunities, from breakfast (Kellogg (NYSE: K  ) ) to lunch and snacks (Kraft (NYSE: KFT  ) and Coca-Cola (NYSE: KO  ) ), to entertainment (Disney (NYSE: DIS  ) ), a weekend stroll at the mall (Urban Outfitters (Nasdaq: URBN  ) and Gap (NYSE: GPS  ) ), or taking in a movie (Netflix (Nasdaq: NFLX  ) ). And if saving money to buy more stock replaces saving money to buy more stuff, even better.

7. Show your gratitude for your family's gifts every day. The most powerful illustration of the good that comes from giving is gratitude. Share how grateful you are to be able to afford that flat-screen TV and how much you appreciate gifts (tangible and intangible) from others. Talk to them about how you are "paying it forward," and openly share the joy you get from helping others. Being thankful is a lesson worth revisiting year-round.

10 cents for your thoughts
Finally, call Junior over to the computer, and together, you can help other kids become smart about money. The Motley Fool's annual charity campaign, Foolanthropy, is aimed at eradicating financial illiteracy. Perhaps a handful of Fools teaching money lessons in one D.C. public charter school can't save the next generation from the financial missteps of the previous ones. But student by student, we're going to do our best. And you can help, too.

For every article comment you make throughout the campaign (Nov. 25 to Jan. 8), we'll donate $0.10 to our adopted school (up to $20,000). Cat got your tongue? Then answer one of these questions:

  • What's the earliest money lesson you remember learning?
  • What's the first thing you saved your allowance to buy?
  • What's the cutest thing your kid has done today? (Hey, every comment counts!)

Chime in below!

Dayana Yochim used to save her allowance to buy dollhouse furniture -- an investment in play time and staying out of trouble. She owns none of the companies mentioned in this article. Walt Disney and Netflix are Motley Fool Stock Advisor recommendations. Walt Disney and Coca-Cola are Inside Value selections. Coca-Cola is an Income Investor recommendation. The Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 25, 2009, at 11:12 AM, mschmalf wrote:

    As a youngster I was able to get most things I wanted. Most things of any cubstantial cost came with a standard rule: I had to earn half before they would kick in the other half. Most times allowance would take too long so I had to go out and find other work to do to earn the difference.

  • Report this Comment On November 25, 2009, at 3:05 PM, militauro wrote:

    I like some of these ideas, such as the 401k idea to match the savings. My parents, although kind people, were definitely not savvy when it comes to finances. The longest I would save was two weeks, only cause I needed to wait two weeks in order to afford some Marvel action figures. Good article.

  • Report this Comment On December 03, 2009, at 4:22 AM, DJBritton wrote:

    Great article.

    It is crucial for parents to take an active role in promoting effective money habits and beliefs with their children.

  • Report this Comment On December 04, 2009, at 11:07 PM, DelailaAman wrote:

    Parents should educate their children on being wise spenders.If they are given too much luxury they wont be a able to survive in difficult times.Being rich doesnt mean you dont have to be thrifty.

  • Report this Comment On December 16, 2009, at 9:31 AM, caseymead wrote:

    Hello there - if you are interested in this article you might be interested in this book we are currently doing the PR for - it is called The Pocket Money Plan by Julie Hedge and is designed for parents to teach their children and spending and saving skills:

    http://www.amazon.co.uk/Pocket-Money-Plan-Practical-Teaching...

    Thanks!

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