Teaching kids about cash: Advice for parents on how to raise a money-savvy child

By Jean Sherman Chatzky


When it comes to teaching kids about money, America has a problem. It's not just that the majority - 85 percent of high school students, at last count - aren't getting any school-based personal-finance education. It's also that what education there is seems to be having little impact. "Today" contributor and Money magazine editor-at-large Jean Sherman Chatzky has advice on how to talk to your kids about money.

TAKE A LOOK at the most recent survey from the JumpStart Coalition for Personal Financial Literacy, a group founded in 1997 to promote personal-finance education. That year, JumpStart asked high school seniors 31 multiple choice questions about saving, spending, insurance, investing and credit. The average student got 57% right. Three years later, the average score fell to 52%. This year, the average was 50%. Worse, notes JumpStart director Dara Duguay, seniors who had completed a money-management course answered 48% correctly.


I recently attended a JumpStart training session for high school teachers, and I came away with these theories about why our system is failing. Personal finance education doesn't have a home. In some high schools, money management is taught in consumer economics (what's replaced home economics); in others, economics or social studies; in yet others, math. The upshot is that not all students are included. Economics and consumer economics are often electives. When personal finance is part of the math curriculum, it's generally taught in low-level classes. According to Jim Rubillo, executive director of the National Association of Teachers of mathematics, that means the more gifted students can miss out. They're too busy with calculus. Unfortunately, they're also likely to be the ones struggling with hefty student loans.

High school - even middle school - is too late. By high school, kids are being primed for standardized tests and their hormones are raging. More important, their money habits are already set. According to Teenage Research Associates, a Northbrook, Ill., market research firm, 16- and 17-year-olds spend, on average, $153 a week, 7% have a credit card in their own name, and 18% have access to a parent's card. It's a little like trying to teach teens about sex - research has shown that you can better mold kids' behavior if you reach them before they start to practice.

Susan Beacham, a former private banker and mother of two, is trying to do just that. She has developed a curriculum to teach first- and second-graders about money. Her tool is the Money Savvy Pig - a see-through bank with slots for saving, spending, investing and donating. If it sounds basic, it is. I recently took Beacham's curriculum (www.moneysavvygeneration.com), a box of pigs and several hundred pennies to my son's second-grade class. With the exception of investing, which seemed tough to grasp in such a short time, the kids got it. Eight-year-old Stephanie Barrett (clearly a future CFO) even explained - in detail - how interest works. Talking to kids about money when they're young is non-threatening, Beacham explains. When you're dealing with dimes and quarters instead of $10s and $20s, the mistakes are less costly.


Make sure you model the right behaviors for your kids. Show them balanced behavior. "If you're watching TV, do you hear yourself saying 'I have to have that?'," asks Eileen Gallo, co-author with her husband Jon of a new book called Silver Spoon Kids. If so, it's understandable that your kids would do the same. The more balanced response is to comment on the item itself - "that's a beautiful pair of shoes" - without noting that you intend to run out and buy it. Notes Jon Gallo: "It's a matter of separating wants from needs." One parent he worked with took her daughter to Toys R Us. The daughter ran down the Barbie aisle and insisted that she "needed" a purple purse for her doll. The mother paused and said, "Your Barbie already has a pink purse. Do you think she needs a purple one too?" On her own, the little girl decided, no.


Giving your kids an allowance when they're young, and a pre-paid credit card like Visa Buxx when they're teens is key to teaching them how to live within their means as adults. But you don't just want to distribute. Use the start of an allowance (or a raise if you've already started) to discuss what your kids are expected to do with that money. Are they responsible for buying their own candy at the movies? Their own CDs at the mall? Are they expected to save some and give some away? "We don't think there is a magic allowance formula that determines how much a child should get," says Eileen Gallo. It's up to the parents to be realistic about a child's needs.


One disheartening truth about the world we live in is that 60 percent of the population owns 99.8 percent of the wealth, leaving the remaining 40 percent with 2/10 of one percent. As a result, most of our children don't live in the same world that a significant portion of the population does. Particularly when they're young, they're open to the message that they need to help. But, the Gallos note, you need to make it concrete. How? Make giving a family affair. Spend a morning stocking the shelves at a local pantry. Walk with them, instead of running on your on, for breast cancer or heart disease. Help them count the change they save, then write a check for that amount to a charity they choose. And be sure to request that the thank you note come to them.

Jean Chatzky is the financial editor for "Today," editor-at-large at Money magazine and the author of "Talking Money: Everything You Need to Know About Your Finances and Your Future." Information provided courtesy of Jean Chatzky and Money magazine. Copyright © 2002. All rights reserved. For more financial advice, visit the Money magazine Web site at: Money.com