A Lesson Plan for Teaching Kids How to Handle Money

Children have returned to classrooms and campuses for another year of the three Rs--reading, ‘riting and ‘rithmetic.

Unfortunately, most kids will not be taught the three Ss--saving, spending and shopping.

Managing your money may not be calculus, but it is a crucial skill for everyone.

Although a growing number of schools teach basic personal finance skills, far too many young people enter the real world in a school daze, ignorant of the ramifications of having a credit card or missing a payment.

“If you start out on a journey without knowing where you are going, you will get lost,” says Elizabeth Schiever, director of the high school financial-planning program for the National Endowment for Financial Education. “Yet we send children into the world without any direction on how to handle money.”

Of course, previous generations didn’t do much better. Good or bad, most kids inherit the habits of the adults around them.

A 1993 study by Liberty Financial Cos. found that 88% of high school students “learned everything they know about money” from their parents.

“The strongest message children receive is from the behavior of their own parents,” says Shawn M. Connors, president of the Financial Literacy Center in Kalamazoo, Mich. “Parents must teach by example. They talk about saving, but the child never sees them save; they claim to be a smart shopper, but the child never sees it. If parents aren’t active teachers and positive role models, money problems pass to the next generation.”

Here are some key lessons for children.

* What to do when your wallet is lost or stolen. This is probably the most practical lesson we can teach young adults, because it will happen to all of us at one time or another.

Here’s a trick to make it easy. Empty your wallet onto a photocopy machine, line up the cards and snap a copy. (This is also handy for remembering what else is in your wallet.)

Put the sheet in a safe place. Update the list when you change the cards you carry. Then, if your wallet disappears, you’ll know exactly which cards are missing and their expiration dates.

Call the credit issuers, which will reduce your liability. If some crook runs a big tab on your card, the call should mean your responsibility is limited to no more than $50 of the fraudulent charges.

* How long it takes to earn what you spend. Spending is viewed solely in dollar amounts, particularly among children, who for years spend money they haven’t actually earned.

Instead of boiling everything down to its price, think of the time value of a dollar. When you consider that next purchase, examine how many hours you would have to work to set aside the necessary cash.

“That new pair of Rollerblades might look pretty good right up until the kid realizes that it would take 25 hours to earn the $185 to buy them,” says Connors. “This is a good lesson in what you have to show for how hard you work, and it’s a good incentive for making the most out of your money.”

It also might bring home lessons about the difference between high and low wages, which could lead to discussion about the importance of an education.

* How to be a smart shopper. From taking advantage of discounts to learning that “sale” doesn’t necessarily mean an item is a bargain, shopping savvy is essential. If you understand the wage value of a dollar, “a penny saved is a penny earned” makes sense.

“If you help kids see how to stretch their dollar, they will pick up very quickly that there is value in being a smart shopper and that making your money go further is its own reward,” says Paul Richard, vice president of the National Center for Financial Education.

To see what kind of a spender your child is likely to become, check out the National Center for Financial Education Web site at https://www.ncfe.org and fill out the youth spending profile. In addition, look at the youth credit risk profile that illustrates how a youngster would be viewed in the eyes of a lender.

* How credit cards work. Most students get their first credit card solicitations before they finish their freshman year in college. Once a student turns 18, he or she can sign up without a parent as a co-signer--and can mess up his or her credit for years to come.

The cards offered to kids typically have high interest rates and poor terms; students typically are not comparison shoppers and hold expensive cards too long. In addition, many students don’t grasp the concept that the debt must be repaid.

Review credit card offers with your kids and compare them to the offers you get. Show how interest accumulates if balances are not paid off promptly, and consider asking them to write down credit purchases in a checkbook-style register.

Most of all, drill home the idea that borrowing money at 15% to 21% is very expensive and that paying off such debt is about the best investment you can make.

And don’t forget to teach how to close old accounts. It’s done in writing, asking the issuer to tell the credit agencies that the account was “closed at the customer’s request.”

* How money grows. The savings habit is best started early. If a child becomes a young adult without any savings, do the math and figure out what could have been saved had he or she put aside a portion of his or her allowance. The numbers are staggering. Say a child can save $100 a year--just $2 per week--and place that money in a bank once each year. If the money grows at 6% annually, the child would have roughly $600 at the end of the five years. That’s not just $100 in investment returns, it’s one year’s worth of savings.

* Balance a checkbook. It’s simple arithmetic, not calculus, and there are instructions on the back of each bank statement. It only seems like a chore because people let statements pile up.

Show your children how it’s done, let them see that it’s not so tough--which you may need to convince yourself of first--and they’ll develop the habit for a lifetime.