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It's that time of year again -- time to shutter Skippy's lemonade stand and start preparing him to head back to school. And as much as you may be admonishing him to buckle down, finish his summer reading list, and study hard, you've got some homework of your own to do. Although you may think that means driving young Skippy to the mall to get outfitted for the new school year, think again . the Foolish way!
The three Rs and an F
Many schools are placing renewed emphasis on the three Rs: readin', 'ritin', and 'rithmetic. There's one subject that curriculums don't typically cover, however, and that's financial education. It's unfortunate that this subject is so often neglected when it can readily provide fertile ground for putting those other basic skills to work.
A primer on financial literacy
You may think Skippy is far too young to be deciphering stock tables and calculating rates of return. That may be true, but the mechanics of investing is not all that's meant by financial literacy.
Financial literacy also means attaining basic skills of money management, like balancing a checkbook and shopping wisely. Too many of us don't have such competence. According to this year's survey of high school students by the JumpStart Coalition for Personal Financial Literacy, student performance was mediocre and still lies below what was measured in 1998. The study also confirmed that students who score higher tend to make better financial decisions.
Financial literacy can influence whether one can achieve one's life goals, such as attending college, buying a house, starting a business, and retiring comfortably. Our country, the world's most prosperous, ranks among the lowest in savings rates and the highest in personal bankruptcy rates. Educating Skippy about financial matters helps not only him, but also the overall economic well-being of our society.
Why wait until the semester starts? Virtually everything you do can engender a conversation touching on monetary concepts. Make it fun, and then the lessons won't be stern lectures, but interesting insights into the way the world works.
Here's a checklist of some of the ways in which you can begin now to introduce your child to the basics of a financial education:
- Budget, budget, budget. The imminent sound of school bells also sends cash registers ringing up sales of supplies and the latest trendy outfits. As you visit Staples and Gap, use it as an opportunity to introduce concepts of budgeting. Make a list with Skippy of those items required for school and a separate list of things he may want but are a bit over the top. If possible, let him choose something from the second list while explaining the concept of necessities versus luxuries. Meanwhile, have him help you scout the newspaper for sales advertisements. Many states also have tax-free back-to-school shopping weeks that give you a chance to save and show Skippy the effect of taxes.
- Use cash. Don't just whip out the plastic to pay for your purchases. For younger children, watching someone count cash helps them with arithmetic and aids in their recognition of money. It also makes the spending experience much more real for everyone. If you do use a credit card, tell your children how it works and show them the listing of charges related to them when the statement arrives. Then, you might even consider explaining how a checking account works when you pay the bill.
- Plan extracurriculars. From scouting to soccer, school also invites participation in other activities. Many of these groups entail fees and related costs that can add quite a bit to your family's expenses. Budgeting plays a role here as well, in addition to talking about time management. Discuss the idea of balancing work and play, as well as the need for sharing with siblings the time you spend chauffeuring them around town. Appropriate time management will also make sure that you aren't left with overly stressed robots for children.
- Visit the doctor. Look, you're going to have to get those immunization forms filled out anyway, so you might as well talk about the benefits of usual check-ups and their relationship to long-term health, a concept that also applies to taking the pulse of your financial health regularly. For older kids, explain what a copayment is and how your insurance plan works.
Once school starts, you've got some more homework to do.
- Decide what's for lunch. To pack a lunch or to buy the corn dog is a question that piques the interest of many a youngster. In some ways, it's Skippy's first real step toward managerial independence -- after all, once he gets to the cafeteria, there's no telling whether he'll really eat the peanut butter-and-sprout sandwich you so lovingly made or whether he'll try to swap it for a chocolate bar. But whether Skippy helps you compile the grocery list so you can buy his lunch supplies or whether he plunks down change to purchase the school lunch, he'll still be exercising his planning and counting skills.
- Set an allowance. If you're not already doing so, start an allowance for Skippy now and pay him a reasonable one, whether it's dependent on finishing certain chores or some other standard. As the pennies mount, open a savings account in his name. Many banks offer special accounts geared for children, with lower balance requirements and special educational features.
- Meet the teacher. Chances are Skippy's teacher would be thrilled to hear of your interest in expanding his learning opportunities. Think about ways in which you could integrate financial concepts with the current curriculum, and consider volunteering to teach special segments or host an after-school club. Get in touch with other local businesses, a chamber of commerce, or a brokerage, to see what other resources may be available.
- Talk about current events. Set aside some part of dinner conversation for a current-events discussion tailored to your child's age and interests. Most news stories involve a financial or economic aspect in some way, whether it's the high cost of gas or the recent decision by McDonald's (NYSE: MCD ) to discontinue its spicy chicken sandwich.
For school and beyond.
- Introduce the market. When it becomes apparent that Skippy is making the connection between the high sales volumes of the PlayStation system affecting the business of Sony (NYSE: SNE ) , it's time to teach him how to read stock tables, the basics of debt and equity, and portfolio allocation. While that may sound daunting, you've got the full resources of the Fool standing by. We offer everything from a weekly review of the market to the Fool's School.
- Plan for the future. College may be a long way off, but it's never too early to teach Skippy about savings and investment vehicles such as 529s, even if he has a trust fund awaiting him. Many a trust-fund child has frittered away his future because of ignorance and apathy. Don't let that happen to your Skippy! Higher education represents a massive financial commitment, and your child should understand its significance.
In these remaining days of summer, it's not a bad idea to keep the lemonade stand going. As one of a child's first entrepreneurial lessons, Skippy will get a chance to count change, set a marketing and business plan, and learn about supply and demand. You'll both be ready to start school refreshed, while sharing a giggle over who in the neighborhood is content with powdered-drink mix and who requires freshly squeezed organic lemons.
Your child will likely make mistakes while learning to manage money, just as you still might. Learn together from these errors, set a good example, and try to instill common sense, not fear. While you might not see a grade for it on Skippy's report card, if you and your child work together to achieve financial literacy, you'll both have fun, while also knowing that he's better prepared to make the grade in the real world.
For more information on general financial topics, check out GreenLight, our new personal-finance service. Who knows? Maybe Skippy will prefer reading it over playing his GameBoy. Treat yourself to a free trial.
Fool contributor S.J. Caplan firmly believes in the importance of financial literacy. She feels just as strongly about the need for her kindergartener to take a daily bath. She does not own shares of any of the companies mentioned in this article. Gap is a recommendation of theInside ValueandStock Advisornewsletters. The Fool has a disclosure policy.