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Teaching Your Kids a Valuable Lesson in Savings

How My 2-Year-Old First Learned about Money

My 2-year-old son has a collection of small change. Though he calls the coins and odd dollar "mine monies," he didn't understand, really, that these little bits and pieces could be traded to get something else. He just hoarded whatever odd jingly handful his grandparents gave him. "Saving his pennies," we said smiling.

But when I found him dumping the change in his bed and throwing it, the need for financial lessons became clear.

Only 10 percent of American 12th-graders--teens about to enter the real world--could answer personal finance questions satisfactorily, according to the Jump$tart Coalition for Personal Finance Literacy. The group found only four of every 10 high school students understood they could lose their health insurance if their parents lost their jobs, and most couldn't balance a checkbook. I'll admit, I don't regularly balance a checkbook now that all my accounts are online . But I learned about budgeting as a kid watching my mom growl over the family checkbook, and then handled my own account in high school. Those skills have prevented me from bouncing checks and racking up credit card debt. I don't want my son to still be throwing money around when he's 22.

So, I decided 2 was old enough to understand the basics of budgeting: choices. Well, that and realizing that money is worth something. When he watches us pay for everything with a little plastic card, it's a hard concept to grasp. A hands-on lesson was in order.

Our first shopping excursion was easy because we were in a sporting goods store and he had only $5, an Easter gift from his grandparents. There are only so many things $5 will buy at a sporting goods store and --luckily for my baseball-obsessed kid--a baseball is one of them. He picked out the ball, took it to the register, handed over his $5 and got $1.82 in change. He sleeps with his ball.

He actually had to make some budget choices during our second shopping trip. We were at a big-box store and he had $2.25 - the leftover $1 from the baseball expedition and some other random change. We insist he save at least half of all non-gift money he collects, advice provided by personal finance author Jeff Opdyke. First, he picked out a ball set from the $1 section, turning down coloring books, stickers and a foam sword. Halfway through the store, he changed his mind.

"I think I want a car, Momma."

"Well, you'll have to put the ball back. You don't have money for both."

He thought. He looked hard at the ball in his hand.

"I want cars. I put this here."

He picked out two Matchbox cars, taking several minutes to determine which two of the rows and rows on display he wanted. The cashier looked at me funny when I insisted she ring those out separately from my order. I ignored her raised eyebrows and helped him dig out the quarter from his pocket. He stood on tiptoes to hand her the crumpled dollar bills and change. He grinned wildly and swung his bag as we walked to the car.

Since the shopping trips, he saw my wallet and grabbed it.

"I need money."

And so begins our next money lesson: earning it.

Opdyke, in a Wall Street Journal column, outlines 15 finance rules for children. Many of the rules are for older kids and teens, but he suggests an allowance should start as soon as your child can ask to be taken to the store to buy something. My son might be there, however, I'm not. I didn't grow up in a household with allowances and haven't quite decided how I want to administer one. Daily chores - making your bed, picking up your room, helping around the house - are just part of family life to me, not something to earn cash. While the husband and I hash out the allowance question, we have agreed that our son may earn small change by doing specific, out-of-the-ordinary tasks. He earned 25 cents the other day for helping me pack his brother's diaper bag.

In the midst of the Great Recession, groups such as the Jump$tart Coalitions are pushing for national financial literacy standards to be taught and tested in public schools, as this New York Times article reported. But parents can, and probably should, start the lessons at home. Older kids need to know how to balance that checkbook. They should know how interest accrues and how tax is applied to incomes. They should have a basic understanding of the stock market. They should be able to translate marketing and stick to a budget.

That's all complicated stuff, but the lessons can start simple.

Our son began noticing all the cartoon characters emblazoned on boxes in the grocery store, where he goes with us every week. (And where he watches us budget our money, plan meals and use coupons.) He stopped in an aisle and pointed at a box of fruit snacks.

"That Curious George, Momma. I need those."

We never buy fruit snacks, and I told him so. Again in the dairy aisle, he wanted a brightly colored box with cartoonish kids skateboarding on the front, squeezing yogurt into their mouths.

"No," I said. "Those pictures are nice, but we like this kind." I grabbed the tub of yogurt we always get. "This one is better for us and it's cheaper."

"Yeah, OK," he said.

It's a start.

Some tips to get you started:

  1. Take kids shopping and tell them what you're doing.

  2. Let them spend. Help them find items that fit their budget, limit choices to three and make sure they handle money.

  3. Make them earn, either an allowance or payment for special chores.

  4. Teach them to save half the money they earn.
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About The Author

Hillary Copsey
Hillary Copsey is a newspaper reporter in Florida with experience writing about everything from population trends to health care issues. As the mother of two boys, she also is versed in searching for daycares, cooking healthy dinners on the fly and playing with trucks. She co-writes the blog Not raising brats.

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