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The best way to teach kids financial literacy is in the context of their everyday lives. Here's this month's teachable moment:

 

Needs vs. Wants:  Let's say you're in the dentist's office with your child and you're waiting for your "turn".  :-)  You pick up a magazine and start flipping through it. This is the perfect opportunity to play the needs vs wants game. By the way, this works best if you use a child-friendly magazine like Parents or FamilyFun.

"Hey, look at this cool yo-yo. I like the designs on it. What d'ya think? Would they be a need or a want?"

Have your child share with you his thoughts then ask follow-up questions such as: "Why do you think that?" "What is a want?" "What is a need?"

Continue flipping through the magazine: "How about this toothpaste? A need or a want?" "Can you find another example of a need?"

It gets fun when kids have to justify their reasons why they think Lunchables is a need. And, who knows, maybe their arguments will convince you.

A need is something we depend on. A want is something we would like but don't need. Knowing the difference between needs and wants helps kids prioritize their (and your!) spending.

As parents we want our kids to grow up to be independent, healthy, happy, and financially secure adults. Getting them there takes a lot of hard work. But knowing what your goals are can help. For example, is it one of your goals that your kids be responsible for making sure they remember to leave the house prepared? If it is, then bailing them out every time they forget something is not going to get them there.

If you rescue your child too often, she will come to rely on you and not on herself. You need to help her build confidence that she can do it on her own. She's going to need your guidance.  The first step is to make your expectations clear.  Then follow through.

She forgets her homework? Let her turn it in late even if it means a few points are taken off. The key is to help her strategize ways to be successful at turning in future assignments. Maybe a check-off sheet near her toothbrush gives her an opportunity to make sure her work is placed in her backpack before she goes to bed.

Forgot her lunch? She's not going to starve. Friends are amazing at sharing their tasty morsels...and not so tasty ones! But again, strategize ways that lunch won't be forgotten in the future.

Left her fancy slippers at home while on a sleepover? You get the idea. But when she does remember on her own, let her know how proud you are of her. Praise is an amazing motivator.

It is true that it can be very hard to ignore the feeling that you are abandoning your child by not coming to her rescue. And there are a myriad scenarios we can play in our head in order to rationalize why we're taking time off from work to drop of the lunch. But the bottom line is, if you rescue now, you'll probably be doing it for a while.

Of course, there will always be times when it is important that you step in and help. We don't want to be so rigid in our ways that being human is no longer accepted. Leaving at home the report that goes along with the unbelievable Miwok Indian project that she worked so hard on is a definite stop-what -you're-doing-and-get-that-report-over-there moment.

And for those times where where you're just not sure, try having your child "pay" you for the time it took out of your day to get her the forgotten item. It could be in gas money or help in putting the groceries away or whatever other creative thing you come up with. This helps underscore to your child that your time is valuable.

The Money Connection:   40% of parents who give their kids allowance say their kids run out of money before the next allowance cycle. And most of these parents succumb and give their kids additional money. Can you see why these kids run out of money? Maybe it's because they know that they can get more. And if you're bailing them out now, at what point do you decide to stop? When they're 18? 25? 40?

The lesson we need to be teaching to our kids is that when the money is gone, it's gone. This lesson is important because it forces kids to live within their means. And that's all about making different spending choices the next time around. Once the ground rules have been set and you've proven you can stick to them, it's actually a beautiful thing to watch your child take a moment to reflect on whether or not buying that lip gloss (when she already has a lot at home) is a smart choice.

 

Note:  As I was writing this article I received an email from Janet Bodnar's Money Smart Kids column. Janet is the Editor at Kiplinger's. Her article tied in nicely with this month's Connection and showed what can happen if parents don't get bailouts under control. Read A Bailout from the Bank of Mom and Dad

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