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Teaching children about money

American kids might know how to read and write, but their financial literacy is abysmal. Neither schools nor parents are teaching children and teens what they need to know about money.

Earlier this year, the Jumpstart Coalition for Personal Financial Literacy released its nationwide biennial survey of financial literacy among high school seniors. The 5,775 students from 37 states obtained an average score of 52.7 percent -- a failing grade by any standard.

So why do children and teens struggle when it comes to learning about money? Because, in most cases, personal finance topics aren't taught in school and parents aren't teaching them at home.

"The vast majority of students in high school -- 85 percent of them -- get nothing in the way of financial education," says Michael Baker, a resource teacher within the Academy of Finance at Col. Zadok Magruder High School in Rockville, Md. Fortunately, some states are now requiring it, but, as Baker says, "It's a slow moving train."

Some experts argue that even when it is taught in schools, the curriculum isn't effective. "What should be taught is a skill set," says Loral Langemeier, author of "The Millionaire Maker's Guide to Wealth Cycle Investing," which goes on sale next month. "Schools ought to be teaching sales, marketing, finance and leadership skills."

Since schools aren't doing the job, experts say parents must. Here are some suggestions to get your children started on the road to fiscal knowledge.

Begin in preschool
Neale Godfrey, founder of Children's Financial Network Inc., suggests teaching children money skills when they are preschoolers.

Langemeier agrees that children are never too young to start. As soon as children begin to use the words, "I want," you can begin teaching about money. Unfortunately, most parents don't even try to teach their children about money until their children are in high school or college and obtain their first credit cards.

"By that time, it's too late and all parents can do is pray," Langemeier says.

Talk about money
Most of us were taught that money is a topic that shouldn't be discussed in polite company. By perpetuating that phobia, we're preventing our children from learning about financial matters. If we don't talk about it, children develop a skewed view of how money is managed.

"Children only see adults spend money -- or charge purchases on credit cards," says Godfrey.

They don't experience adults paying the bills, saving money, making investments or giving to charity. Have your children sit down with you when you are working on these financial chores so they get a balanced view of what managing money entails.

Give children an allowance
One of the best methods of teaching children about money is giving them a weekly allowance. An allowance not only gives children an opportunity to practice saving and spending money, it also teaches responsibility.

Langemeier says that it's fine if children end up playing with the money or leave it lying around. When her young son misplaced his allowance, she took it. "That taught him real fast that he needed to put his money in a safe place, and now he's very responsible with his money," Langemeier says.

Parents frequently struggle with the dilemma of whether they should just give children allowances, or make them earn it. Godfrey suggests giving an allowance, but not tying the allowance to performing specific chores.

Instead, think about household chores or work as falling into one of two categories.

Godfrey calls the first category "citizen of the household" work. These chores are required to make the household run smoothly. Every family member must help with the citizen of the household work. There is no option to forgo allowance to avoid doing the chores.

The second category of work is called "chores for pay." These chores, such as cleaning out the rain gutters or detailing the minivan, go beyond the normal day-to-day running of the household. "Chores for pay" allow Junior to earn some extra dough if he's saving up for a big purchase.

Support children's business ventures
When children are involved in business decisions, they take greater ownership of the risks and rewards. That's evident in every lemonade stand that has ever been run by a 6-year-old. When they have a say in what is going to be sold, how it's going to be sold and what the cost will be, they become very excited about their business opportunities.

Parents need to make sure they take it one step farther and discuss profit and loss. If it costs $8 for the lemons, sugar, cups and ice, and the lemonade stand only brings in $6 worth of sales, the business wasn't profitable. Talk to your children about what they would do differently the next time to make sure their business turns a profit.

Next: "Let them participate ... in your business ventures."
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