To build financial literacy in your children, you must first teach a respect for self and a respect for money.
The first opportunity to learn good money management skills is from a parent. A child is never too young to learn, and if a parent can set a good example it will leave a favorable, time-honored impression.
When I was a child, I learned something about the value of money through the art of coin collecting from my aunt. I lived with her from the time I was nine days old. Early on, around the age of 10, I became fascinated with old coins and learned important facts about the value of money.
It was an idea that caught on early in my life, and I eventually made coin collecting a bit of a hobby. It was fun, enjoyable, and fascinating to collect Indian Head pennies, Lincoln Head pennies, Standing Liberty halves, Mercury dimes, Kennedy halves, Morgan silver dollars, and other types of coins. For quite some time, I had in my possession the oldest Lincoln Head penny ever made; it was dated 1909.
Collecting old coins helped to instill in me the value of saving, and I felt proud. It gave me a sense of self-satisfaction to amass several hundred dollars' worth of old coins and silver certificate dollars in my formative years.
When someone wanted to barter or trade, if I had two of the same coins and could spare one, a good deal was always in the making. I had quite a collection of coins up until mid-adulthood, when someone got into my cedar chest at the foot of my bed and stole my coin collection.
I learned a very valuable lesson from that experience: Never become too attached to material things.
"Ordinary riches can be stolen; real riches cannot. In your soul are infinitely precious things that cannot be taken from you," wrote Oscar Wilde. His masterful words can help should your child (or you) ever happen to lose what you have saved. In the meantime, though, do save - and set a tone for your children to do the same. If you help your children develop this habit of saving in their early years, they will be more economically savvy in their later years, I promise.
Help develop an appreciation for the value of money.
This one is a biggie. Until kids realize that money is more difficult to make than it is to spend, they will continue to think that it merely grows on trees. To drive home the point that it doesn't come from a tree - but out of your pocket! - fight the urge to replace immediately something the child has lost because of his or her irresponsibility.
For example, if he takes an expensive iPod to school and loses it or it gets stolen, it is better for the child to earn the money it requires to replace the item. Respect for money should increase the second time around.
Dollars don't go far: Understand a want vs. a need.
When a child works, earns an allowance, or is provided money, he can learn quickly that it is easier to spend it then it is to earn it. Here, it's a matter of decision-making. How bad does he want the item? Explain the difference between wants and needs; children who get this point early in life are far better money managers when it comes to making future decisions.
Help your child develop a savings habit.
What a wonderful idea this is. It's pretty exciting when your responsible little girl sees something she wants and actually has the money saved to purchase it. It gives her a sense of empowerment knowing that she accomplished this over a period of time on her own. Having acquired the ability to set money aside for a given item makes it so much easier for a child to do it a second time.
Teach how to spend wisely.
Help your child realize that just because he has money doesn't mean he needs to spend it all in one place at one time. Helping your child learn the appropriate way in which to allocate those dollars is a major accomplishment.
Discuss his various options, and let him reason out with you through conversation the pros and cons of how he spends it. Perhaps he can spend 60 percent of it on items from his wish list, and put the rest of it in the bank. Or invest a small portion of it so it can grow for him (you can guide him through the process and periodically check on the investment) and give 10 percent to charity. You may want to create an account specifically to be used for philanthropic purposes - church, boy scouts, an animal shelter, or a cause close to your family's hearts.
Our society is very good at teaching people how to work for money, but much less emphasis is placed on helping kids to understand how they can make their money work for them. What an amazing lesson this could be.
Dr. Robert Lawson is the author most recently of Dare To Be a Millionaire, and is the proud father of three sons. His writing has appeared in USA Today and Black Enterprise.
Also see: How to Prepare Financially for Another Child
How to Open Up Financial Communication in Your Family