New York Ask a child where money comes from and you might hear that it's printed by automatic teller machines, or that it grows on trees. But as anyone who's ever been in earshot of a check-out line tantrum knows, it doesn't take long for this confusion to stop being cute.
It was after a series of such meltdowns that Vincent Iannelli, a pediatrician and father of three who lives outside Dallas, decided it was time for his 5-year-old to start learning about how much things cost.
"He would just want everything. If we were at the grocery store, he wanted candy, or he wanted quarters to get little toys out of the machine. It was becoming a big problem," Iannelli said. "So we decided we were going to give him a set amount of allowance each week, and when he asked for things, we said, 'You have to buy that with your own money.' And very quickly he learned to make better choices."
These days, when the Iannellis go to the toy store, their 6-year-old son reads the prices and understands which items are expensive, and which ones are within reach. He even saved several weeks of his allowance to buy a special book he wanted. The experiment has been such a success, Iannelli is thinking about starting even earlier with his twin toddlers.
"This is important stuff, and I don't think you just can sit back and expect kids to pick it up," said Iannelli, who runs several Web sites on child-rearing and recently wrote a book for new fathers. "A lot of parents just don't think about it, or they just buy what their kids want. But if they're asking you to buy them things and they know about ATM cards and credit cards, they know about money. They just don't know how to budget it."
Most experts recommend an age-appropriate allowance for children as young as 6 or 7, but it's never too late to start as long as the children are still at home. Regardless of age, giving a child the responsibility of managing money can be "like a miracle," said Janet Bodnar, author of the book, "Dollars & Sense for Kids," and senior editor of Kiplinger's Personal Finance.
Bodnar saw a huge difference with her own children, who were responsible for buying their refreshments when the family went to the movies. Once they understood that the cost of these goodies would come out of their own pockets, they looked for theaters that gave free refills, whereas if Mom had been paying, "they couldn't have cared less," Bodnar said.
"You've got to give them hands-on experience managing actual cash money. They have to see its limits," Bodnar said. "They have to see the money go, they have to see the big empty in their wallet or their piggy bank."
So how are Bodnar's three children doing? So far so good for the older two, now in college; they're managing their money well and haven't overdrawn their checking accounts. And her youngest, still in high school, recently opened a savings account to hold money earned from a summer job.
Savings and checking accounts can offer children valuable lessons on making deposits and withdrawals and can teach basic skills, like how to write a check and balance a checkbook. Credit cards, though, are a different story: With the exception of debit cards linked to checking accounts for older children, most experts say it's a mistake to give plastic to teens before they've nailed the basics of money management. It's especially important to discuss the dangers of debt with college-bound children, because they'll be inundated by credit card offers.
For parents who are struggling with debt themselves, this might be a sticky subject. But you won't be doing your child any favors by avoiding the issue.
"It's a challenging topic for a lot of us, because sometimes the people who are doing the teaching really need to learn the lessons first," said Howard Dvorkin, president of Consolidated Credit Counseling Services, a nonprofit educational organization. "But there is something every American can teach their kids about money. This is a blank chalkboard that wants to be filled up with information."
Four pigs of finance
Sometimes educating children turns out to be a learning experience for parents, said Lori Mackey, a former hair stylist who developed a small business based on her own efforts to teach her children about money. Discouraged by the dearth of books and educational products available for youngsters, Mackey designed her own system. She got three small piggy banks and labeled them "G" for giving, "I" for investing and "S" for savings, and a fourth, larger bank that she called the Mama pig. She taught her children to put 10 percent of their allowance in each of the small pigs and 70 percent in the Mama pig, for spending.
Friends encouraged her to market the idea, and she recently won an iParenting Media Award for her four-chambered bank and the book she wrote to go with it, "Money Mama & the Three Little Pigs," which is designed for children ages 3 to 10.
"This piggy bank teaches you how pay yourself first, through saving and investing, and how to give, which teaches compassion. And the 70 percent for spending is designed to teach kids to live beneath their means," Mackey said.
In the process of teaching these ideas to her children, Mackey said she and her husband wound up changing the way they handled their own money. They were always good earners, and were able to save for short-term goals. But they didn't invest on a consistent basis, and rarely contributed to charities. This changed, she said, as she watched her 9-year-old son, Devin, donate 10 percent of his allowance to the Make-A-Wish foundation, and her 11-year-old daughter, Briana, support their local animal shelter.
"It doesn't matter if you get As in school, if you are failing in financial literacy, your life is set up for ruin," Mackey said. "If kids can get money right, they can grow up to be what they want to be, they can get the jobs they like, they can follow their passions, because money will not be the driving force behind what they choose to do. If they follow these principles, that's all they have to do to create wealth in their lives."