Once I was asked if I thought the idea of teaching kids about money in school was controversial. "It's kind of like sex education," one father told me. "It's a loaded gun."
After I got over my surprise, I had to admit he had a point. Money is a loaded issue. In fact, I just saw a survey in which people said they felt more comfortable talking about sex than about the balance on their credit cards.
Nevertheless, both schools and parents share an interest in making children financially literate. And each plays a unique and complementary role.
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Schools are a good venue for teaching big-picture lessons about inflation, or using online tools to show teens how to shop for a mortgage or a car loan. The challenge is to put together a curriculum that teens can reasonably be expected to understand.
Insurance and investing are two of the toughest areas for kids to grasp, says David Anderson, of Working in Support of Education, a group that has developed a personal-finance course for high school students. "With investing, we go for breadth rather than depth," he says. "We cover stocks, bonds and mutual funds and what drives pricing, but not ETFS or stop-loss orders."
Parents have the edge when it comes to teaching real-life money-management skills and their family's own financial values. In fact, parents should take the lead in helping kids learn the six money skills I think every child needs to know before leaving home:
- How to manage a cash allowance. Nothing is more effective in teaching kids how to make spending decisions than having to get along on $10 a week.
- How to manage a checking account (and an ATM or debit card). Every teenager should have an account with his or her own money, and know how to balance it.
- How to save for a goal. Kids need a reason not to spend, whether it's saving up to buy an action figure or an iPod. Consider matching all or part of what they put aside.
- How to discover the magic of compounding. Small amounts saved when you're young will eventually grow into big piles of money. See our How much will my savings be worth? calculator.
- How to get out of debt (or not). Have kids use our calculator to see how long it would take to pay off a balance of, say, $2,000 if you paid $50 a month on a card charging 18% interest. Answer: More than five years.
- How to compare prices. Start with unit prices at the grocery store and move on to J. Crew versus Old Navy. My 19-year-old son still remembers doing this exercise when he was younger with sports drinks at the supermarket. Now he asks for my Costco card to buy gas for $3.89 per gallon.
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