Treasury Secretary Paul O’Neill announced last month that his office would aggressively promote financial literacy in our schools.

At the same time, the Department of Education announced a $250,000 grant to the Jump$tart Coalition, a nonprofit organization whose goal is to ensure that students have skills to be financially competent upon graduation from high school.

“As we shape our children into adults, we must acknowledge that part of being an adult is to develop and understand individual financial objectives,” said O’Neill in announcing the Treasury’s new Office of Financial Education.

“The best place to start is in our schools, and the most effective approach is through the integration of financial education into the core curricula of reading and math.”

I agree that efforts to improve personal finance programs in the schools are necessary and long overdue. However, I disagree with the secretary’s contention that financial literacy begins in the classroom.

Start young

The best time to start teaching your children about money is when they are young. It begins in the home with parents and other influential people in their personal lives.

Make no mistake about it, children learn what they live. A national survey by the American Savings Education Council and the Employee Benefit Research Institute found parents underestimate the role they can play in educating their children about money. The organization’s 1999 Youth & Money Survey found that 94 percent of students said they turn to their parents for financial education and guidance.

Yet when asked to describe what they have specifically done to teach their children about financial matters, 56 percent of parents in the 2001 survey could name only one example, 31 percent cited just two examples, and 8 percent said “nothing” or “don’t know.”

Whether you realize it or not, you are teaching your children about money every day, for better or worse.

Life lesson

Even I would never have imagined that my 7-year-old daughter, Olivia, would get a lesson about saving and spending while fighting for her life.

This past summer, Olivia was diagnosed with a rare and grave condition that put her in the hospital for more than two months. During her hospital stay, she had to take an incredible amount of medication, from pills that could choke a horse to liquids that made her gag to shots that turned her thighs black and blue.

It was an awful regimen that would make Olivia collapse in tears at the sight of the nurse coming through the door. Sometimes it would take us an hour to get her to take all her medicine.

To help with the situation, Michele Kim, a child life specialist at Children’s National Medical Center in Washington, suggested a system she often uses to help children to take their medicine.

For every dose Olivia took within five minutes of its scheduled time, she received one play dollar. For every shot, she received two of the faux bills. At the end of the week, Olivia could use her savings to purchase toys.

Initially, I wasn’t happy about how high Kim priced the toys. Here was my child isolated in a hospital room suffering from a dreadful illness, and Kim wanted her to pay $25 in play dollars for a Barbie that would ordinarily cost just $5 in real money. If anybody deserved a discount, I thought, it was Olivia.

Good thing I didn’t say anything. If I had, I would have let my sympathy for Olivia ruin an opportunity for her to practice some important lessons about personal finance. As parents we need to understand that our children are capable at a young age of understanding basic concepts about money.

Kim explained later that if the toys were priced too low, Olivia would have little incentive to take all her medication. She was right that if we made it too easy for Olivia to earn the play money, she wouldn’t have to save up to pay for what she wanted.

Kim’s reward system turned out to be a blessing. Olivia began taking her medicine with much more ease. The money lesson was a wonderful bonus.

I watched as Olivia put off buying a lot of smaller, less expensive items. Instead, she chose to bank her money so she could purchase items that she really wanted but that cost more. She even decided once to use almost her entire week’s worth of earnings to buy a Bob the Builder play set for her 4-year-old brother and a doll for her 2-year-old sister.

Simple principles

It was gratifying to see that even during such a trying time, Olivia applied the following principles that my husband and I teach her at home:

A sense of accomplishment by earning her own money, even if it was just play money.

The importance of waiting and saving for what you want.

The understanding that you can’t always afford to buy everything you want.

The pleasure you get when you use your money to make someone else happy.

Thanks to Kim, I was reminded that money lessons can be gleaned from all sorts of experiences in life. Of course, there is no guarantee that if you teach your child the right things they will become good money managers. But the odds are better if you don’t just leave it up to teachers in the classroom.