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Teaching your kids to be money-savvy

Children between the ages of 5 and 14 have direct purchasing power of more than $40 billion a year and influence $146 billion worth of purchases. Yet, few children are taught, either in school or at home, about managing money.

With schools forced to make tough choices on which "noncore" subjects to include in curriculums, parents are often left to teach financial skills on their own. For parents, many of whom don't feel confident in their own money-management prowess, teaching their kids how to manage money can be an intimidating task.

But don't put off addressing the issue. One point on which all of the experts agree is that parents must be willing to allow children to make mistakes in their purchasing decisions if they want to teach financial responsibility. It's much better to let children make, and learn from, those mistakes early with small amounts of money than later in life when they can find themselves in serious financial trouble.

"One of the biggest mistakes parents make is not allowing their children to have control over their own money," says Susan Beacham, founder of the Money Savvy Generation, an educational money-management organization in Lake Bluff, Ill.

Here are some strategies for teaching kids of all ages about money.

3 years and under
Most experts agree that the sooner parents start teaching their children about money, the better. "I would encourage starting earlier than you even thought you would," says Beacham.

Even at age 3, you can begin giving children an allowance. What usually happens? They play with it, they forget where they put it or they lose it. That's OK. Children are learning that money is of value and needs to be kept in a safe place so that they know where it is when they want to use it.

Ages 4-5
In today's consumption-driven society, teaching children to save and invest is a challenge. To teach children the important savings-related concept of delayed gratification, try using a technique known as "one now, two later." The technique is based on a study conducted at Stanford University that identified a correlation between delayed gratification and lifelong success.

In the study, a researcher gave 4-year-olds a marshmallow. The researcher then told them that if they could wait to eat the marshmallow until he returned from running a 15-20 minute errand, he would give them an additional marshmallow. When the same children were studied 14 years later, the children who were able to wait to receive the second marshmallow before eating the first one were more positive, self-motivated, persistent in the face of difficulty and able to delay gratification in pursuit of their goals. Researchers also found that the self-discipline required to delay gratification can be taught by parents and teachers.

At this age, pay particular attention to the message you are sending your children about money. Children are excellent observers and will mimic the attitudes, behavior and language that they see their parents and other adults use.


Next: in elementary school should differentiate between wants and needs
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