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Teaching Kids About Money: An Age-by-Age Guide

"It's actually easy to teach kids about money," says Jayne A. Pearl, an Amherst, MA-based author of Kids and Money: Giving Them the Savvy to Succeed Financially. "Turn your day-to-day activities into learning experiences." Trips to the bank, store, or the ATM machine, for instance, can be a perfect opening for a discussion about your values and how you use money. When children are very young, you can work money concepts into your child's imaginary games, like playing pretend store or restaurant. Read on for some fun, simple ways to introduce finance to your child.

Ages 2 and 3

"A 2- or 3-year-old faced with a choice between a penny, dime, and nickel will almost always choose the nickel because of its size," says Dorothy Singer, Ed.D., a senior research scientist at Yale University in New Haven, CT. But while very young children won't fully understand the value of money, they can begin to learn the names of coins. One way to do this is to play the coin identification game. You and your child can trace around the outside of various coins and color in the shapes. Then invite your child to match the coin to the image while discussing each one's name. (Note: Toddlers may try to swallow coins, so always provide close supervision.)

Young kids love to play store, but an imaginary shop in the living room is more than just a fun way for your child to exercise his imagination. By exchanging play money for goods, your child begins to understand the basics of commerce, says Dr. Singer. Use cereal boxes, fruit, sponges, or paper towels as store items. Together, make pretend money and shop till you drop.

Ages 4 and 5

Before heading to the supermarket, ask your preschooler to help you clip coupons. (Don't forget to use safety scissors.) When you're at the store, hand her the coupons and ask her to keep an eye out for the products. This will make her feel like she's helping, and it's an easy and fun way to talk about saving money, says Neale S. Godfrey, chairwoman and founder of the Children's Financial Network in Chester, NJ.

Most preschoolers would rather play imaginary restaurant at home than go out for dinner. It playfully promotes a variety of skills, such as setting the table, learning good manners, and making change. "Many 4-year-olds have to be reminded after the pretend meal that they have to pay the bill," says Dr. Singer, "but once they understand the concept, they get very excited about paying with pretend money or making change as the cashier."

Ages 6 to 8

"As soon as your child is receiving an allowance, he'll need a place to put his money," says Pearl. Make a trip to the bank an event. Help your child open a savings account, and encourage him to make regular deposits. As the balance grows, you can discuss the concept of interest and how the bank pays people back for saving their money. Many banks have children's accounts that offer no-fee and no-minimum-balance accounts.

This is also a good age to take up coin collecting as a hobby. (You can spark your child's interest with state quarters.) Visit the kids' section of the United States Mint Web site (www.usmint.gov/kids) with your child and learn about the evolution of U.S. currency. You'll also find online games and cartoons to keep your child engaged.

Ages 9 to 12

One way to teach comparison shopping is to read the store's price labels with your child, look at the size and price, and compare the bulk amount per cent. Don't forget to take quality into account. For example, one week buy brand-name paper towels. The next week, try a generic brand. Then discuss the differences and decide together if the brand name is worth the extra cost.

The all-American yard sale has you annually cleaning out your attic, garage, and child's closet. This year, put your child in charge. With some supervision, preteens may take to this project like a duck to water. They can handle much of the responsibility while learning about setting a value, making decisions, and helping you haggle with customers over prices.

Ages 13 to 15

A child's early teen years are not too early to learn about the stock market. You can pretend to invest in companies your child is familiar with, like Disney or Mattel. Make it a family activity by having each member pick a stock, suggests Godfrey. Then read the paper or watch the financial news together, and discuss how the stock values of everyone's choices fluctuate.

Between lunch money, school supplies, and other small necessities, allowance can go very quickly for young teens. Help your child set a budget by first discussing wants vs. needs. "I call it the potatoes and gravy game," says Pearl. "Potatoes are food we need to survive. The gravy makes it taste better but isn't necessary." You can reinforce this idea by going over the family budget with your child and discussing your family's needs vs. wants.

Ages 16 and up

Stored-value cards, such as Visa Buxx or American Express Cobaltcard, are simple tools that parents can offer to teach lessons in financial responsibility, according to Pearl. Teenagers can use these buying cards to pay for things without using cash or credit cards. Parents load the cards, which look like credit cards, with a set amount of money and then let their teens budget their allowance. (Ask your lender about possible annual fees.)

"With a little encouragement," says Godfrey, "giving to charity can become part of your child's mentality." In fact, donating can be more than a financial lesson; it can teach social responsibility. Help your child pick five charitable organizations that interest him. To decide which is worthy of your hard-earned dollar, make it a family project to find out what they do, how well they do it, and what percentage of the donations goes to their cause.

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