Financial Literacy for the Whole Family

My inspiration for this column is Leah Ellyson, a junior at North Marion High School in Farmington, W.Va., and winner of the 2009 financial-literacy poster contest sponsored by the National Foundation for Credit Counseling.

Leah's poster cited four common-sense rules she had learned from her parents:

I will save, save, save.

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I will invest wisely.

Credit cards are for convenience only.

I will live within my means.

Easier said than done? Not necessarily. Here's how I'd teach those lessons to parents and kids, while keeping things simple and fun.

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Row 0 - Cell 0	How to Teach Young Kids to Save
Row 1 - Cell 0	Getting Teens to Save

Lesson #1: Save, save, save

For parents: Sign up for an automatic savings plan that takes money from your salary before it burns a hole in your pocket.

For kids: Have them save, say, 10% of their allowance toward a goal (see How to Teach Young Kids to Save and Getting Teens to Save. For younger children it could be something small, such as a toy or video game; for teens, an iPod. Or you could all contribute to this summer's family vacation.

For the whole family: Use our compounding calculator to see how fast money will grow.

Lesson #2: Invest wisely

For parents: Take advantage of investments in your 401(k) or other retirement plan. You may have access to a target-date fund, which automatically diversifies your assets in line with your anticipated retirement date.

For kids: By middle school, kids can understand that owning stock in a company means they benefit when customers patronize that business. Talk about companies they're familiar with. Would they like to own shares of Apple? McDonald's? They can follow share prices online.

For the whole family: If you don't already own stock, consider buying a few shares through a low-cost broker such as ShareBuilder.

Lesson #3: Credit is a convenience

For parents: With credit cards, follow the three basic rules: Pay your bill in full every month, pay on time, and keep your balances below, say, 30% of your credit limit on each card. (If you're in trouble, get help from a reputable credit-counseling agency.)

For kids: In addition to explaining those three rules, explain to your teens that a credit card isn't money. It's a loan for which you pay interest. As an exercise, have your kids use our calculator to figure the cost of a car loan.

For the whole family: Use our calculator to see how long it will take to dig out of debt.

Lesson #4: Live within your means

For parents: Use an online budgeting site, such as Mint or Wesabe.

For kids: Start an allowance when they're in elementary school and give them financial responsibilities so they can decide how to parcel out their cash. Are designer-label clothes and shoes worth the price?

For the whole family: Have fun with a money-oriented game, such as the traditional versions of Monopoly and The Game of Life.

Follow @JanetBodnar on Twitter.

Janet Bodnar is editor-at-large of Kiplinger's Personal Finance, a position she assumed after retiring as editor of the magazine after eight years at the helm. She is a nationally recognized expert on the subjects of women and money, children's and family finances, and financial literacy. She is the author of two books, Money Smart Women and Raising Money Smart Kids. As editor-at-large, she writes two popular columns for Kiplinger, "Money Smart Women" and "Living in Retirement." Bodnar is a graduate of St. Bonaventure University and is a member of its Board of Trustees. She received her master's degree from Columbia University, where she was also a Knight-Bagehot Fellow in Business and Economics Journalism.