Teaching Kids about Money

      It's never too early to start teaching kids about money. Rick Emerson, author of Zombie Economics, shared some practical tips.

      1) Start talking about it early.
      There's an old saying that when it comes to discussing "the facts of life" with your kids, you should decide on the age when it seems appropriateand then subtract three years. The same is true of money. Even at a very young age, kids are like little surveillance cameras: recording everything they see, and filing it away. That's how they start to learn what's appropriate and how to behaveand most of that early input comes from their parents. Of course, there's going to be a lot of information over timefrom other kids, from advertising, and from their own process of trial-and-errorthat's why it's crucial to lay the groundwork early.

      For example: a friend of mine was using an ATM, and his four-year-old asked what it was. Since they had a piggy bank at home, he explained that the ATM was like a piggy bank for grown-ups. That's a small piece of info, and easy enough for a four-year-old to understand, but it starts to establish the idea of savingsand that money doesn't just come out of a magical machine. (Something many adults seem to forget.)

      2) Teach them with cash.
      I was explaining BitCoin to my mom recently, and I found myself using a bunch of pennies on the table to illustrate how it works. It's the same with young children and regular money - they learn best by seeing it and internalizing how it operates.

      The first time they find a penny on the sidewalk, put it into a jarand then, when a hundred of those coins equals a dollar bill, an abstract concept becomes much clearer.

      Another way (especially in Portland), is to let your kids put the money in the parking meter. If they can tell time or you have a little stopwatch, they can also be in charge of tracking how much time is left. Understanding the basic concept of spending cash and receiving something in return seems obvious, but with more spending becoming virtual, it's never too early to help them make the connection in real life.

      3) Avoid the "A" word.
      There are many (many) different views when it comes to kids and allowances. The bottom line, though, is that kids need hands-on experience with money at some point, and the more it can mirror the real world, the better.

      When kids reach six or seven years old, instead of starting them on an "allowance", use exactly the same amount and call it a "salary". If it's tied to chores they were already doing, even better, because now they're getting paid, just like a grown-up.

      When in doubt, give them less. Remember: you want their allowance to run out earlyat least at first. This will force them to make decisions about what to spend and when. If it's gone early in the week, resist the temptation to bail them out.they need to start viewing money as a finite resource.

      As your kids get older, increase the amountbut lengthen the "pay period". Going from a once-a-week salary to an every-other-week salary to a once-a-month salary trains them to handle their money responsibly for longer periods of timesomething that will be crucial when they're out on their own.

      4) Give teens a debit cardwith training wheels.
      As adults, your children will face a world of plastic, with credit and debit cards easy to come byand easy to misuse. It's important to teach them how to manage that electronic money.

      Obviously, you don't want your nine-year old using your charge cardbut if you have a good credit score (say, 730 or above), what you can do is put your young kids (without even telling them about it) on your credit-card account as authorized users. This means that if you have a good credit score, they'll have the same good credit score. Then, when they're old enough to learn about plastic, set up a separate account with a debit card they can use. (Make sure this account isn't connected to anything else, and that there's no overdrafting allowed.) Start putting their allowance directly into that account. This lets them learn to control their use of credit & debit cards, and teaches them how to track their money even when it's not cash in their hand.

      And, because it's a debit card and a separate accountwhen it's empty, it's empty. Sometimes it takes having your card declined in public to really teach you how plastic works.