By FPA Members Elaine King, CFP®, CDFA™ and Philip Herzberg, CFP®, MSF

Last Updated: June 7, 2010

Raising money-savvy children who understand the significance of financial literacy and responsibility can be one of the most challenging tasks for parents in today's evolving economic environment. In fact, a recent survey reveals that over 80 percent of parents desire to be better financial role models for their children regarding vital money management topics¹, yet they lack the financial literacy-teaching skills necessary to capitalize on key hands-on and interactive learning opportunities and experiences.

As a parent, how can you begin to educate your kids about the core financial principles of earning, spending, saving and giving money? More importantly, how can you cultivate and reinforce these integral money management and financial literacy skills to raise your children to eventually become financially responsible and secure adults?

You can start to help your children learn to make informed financial decisions, and then build on these opportunities as your kids mature and money circumstances arise, by imparting the following age-appropriate financial skills and talking points:

Starting Points — Talking to 2-6 Year Olds

• Communicate with your children about what is most important to them at that age. Educate them on the differences between needs and wants and construct conversations projecting positive values and attitudes accordingly.
• Teach your preschoolers how to integrate basic math skills (i.e. if you have one dollar and two quarters and you earned two more dollar bills, do you have enough money to buy pizza at the mall?).
• Instill the habit of saving money before spending immediately by introducing a piggybank or alternative place where your children can save their money and keep track of it to reach a concrete goal.

Earning, Saving and Fostering Financial Awareness — Talking to 7-13 Year Olds

• Take advantage of experiences to model how you make decisions as you pay restaurant bills, shop at grocery stores and go to the bank. Your children will quietly observe and pattern your financial values, thus it's critical to model positive and responsible financial behavior.
• Teach and ensure your children can get and make the proper change. Demonstrate the purpose of utilizing a credit card at checkouts to pay for the bill and educate them on the significance of receipts and keeping them around.
• Assign your children everyday small chores in the house and eventually larger projects. Pay them for more meaningful jobs (i.e. earnings), as it teaches your child about work ethic and taking initiative. Teach your children the importance of living in the moment and saving for the future by dividing their earnings into the three following parts: saving, spending and giving. Make a concerted effort to tie these household chores or jobs into a regular allowance to provide your kids with the hands-on experiences and money management tools needed as adults.

Read the complimentary FPA guide, Kids and Money: A Guide for Parents, to further guide your children on steps to becoming financially stable as adults.

Find a financial planner for suggestions on ways to teach your kids about money. Ultimately, raising financially responsible and competent children can be achieved by teaching them the essential money skills and literacy that they too can successfully pass from one generation to the next.

FPA member Elaine King, CFP®, CDFA™, is Vice President, Director of Wealth & Well-Being at Gibraltar Private Bank & Trust. FPA member Philip Herzberg, CFP®, MSF, is Director of Media Relations & Public Awareness for FPA of Miami-Dade.

¹ 2010 Capital One Financial Corporation Foundation Survey of Parents and Teenagers.