In years past it was much easier to teach children about the value of a dollar. Do you remember going to the bank to get coin rolls to roll your change, or how about breaking open a piggy bank to count your savings for a special purchase? You either had the funds to make a purchase, or you didn’t. It was pretty straightforward. Now however, the lines between having enough money to pay for an item and buying it today, or not having enough money for an item, but buying it anyway, by putting the purchase on a credit card have blurred the concept for children learning about money. Wouldn’t you be confused if you didn’t understand the concept of everyday economics? The problem is that children do not see the complete monetary process. Computers have made it unnecessary to carry cash and exchange it for goods and services. Parents swipe debit and credit cards for just about anything and everything. Children have developed a “swipe” mentality – “in order to get what I want, all mom/dad has to do is swipe that little plastic card, and we can take it home.” They do not have any real concept of what the convenience of plastic really entails. Truth be told, it’s easy to see where the confusion comes from. Children see parents selecting what they want from a store, carrying it to the cash register, swiping a card, and walking out of the store with their goodies. Mom and dad have said that money is tight, but when they went to the store they purchased a whole shopping cart full of food with their little plastic card, or wrote on a piece of paper. In some cases, parents do not even have to provide a signature if a purchase is less than $50, so parents can’t even tell their children that the signature represents their agreement to pay for the items once a bill comes at the end of the month, or that it’s their agreement that the funds are available for transfer from their financial institution to the financial institution of the store. We are a culture of credit, debit, and checks – cash seems to have gone by the wayside. But how can we teach children the value of money if they never see it? How can we teach them to manage money in a responsible manner if they don’t know what is going on behind the scenes? Well, like in the Wizard of Oz when Toto pulls back the curtain and reveals the wizard, parents need to demystify day to day financial management for children.

Put Your Mouth Where Your Money Is

Explain to children the process your money takes through the different possible scenarios, like a debit card versus a credit card, checks, money orders, etc. Be clear and explain to them in great detail that you are required to make sure the funds are available in your bank account for debit cards and checks. Help them understand that you will receive a bill at the end of each month for each and every purchase made on your credit card, and you are expected to have the funds to cover it. Also, if you use them, review the concept of money orders and that you have to hand over cold hard cash for someone to issue one to you, before you can send it off to the party who requested it. The majority of younger children will probably not understand these concepts initially, and will need to have them explained more than once.

Show Them the Money

Share your financial picture with your children. Point out when a purchase is made at a store (ideally a purchase for them), and follow up the purchase with a bank statement showing the dollar amount being subtracted from your bank balance for a check or debit purchase, or listed on your credit card statement with the total amount due for the month. Point out that as the consumer you do see your purchases again and are responsible for making sure they are paid. Let them see how the process unfolds.

Teach them the Ropes

Let children assist with the monthly accounting. Despite check book registries, there are a large number of Americans who do not regularly track their bank accounts, and instead rely on bank accounting to keep them informed of their finances. Since banks can, and regularly do make errors, it’s much more practical to let them help you reconcile your checkbook, or update your financial software. Though, showing children how money can be tracked using good old fashioned (read: old-school, before on-line banking)checkbooks each month and actually having them watch an account balance dwindle before their little eyes, could be quite enlightening. Worse, not only do you have to pay the bills, but you have to do the math, balance the checkbook, write out the checks, prepare the envelopes, purchase stamps for them and get them into the mail before their due dates. While walking them through the process, don’t forget to add the insult to injury of late fees.

A Bird in Hand

Have your lesson turn into their reality. Let them open their own bank accounts and make them keep a registry of their deposits, transactions and withdrawals. Be prepared to make this as realistic as possible. If parents have no funds on their person, or in the bank – they cannot use their checkbooks, debit cards or cash. If you want to float them the funds for a month, like a credit card company would, they should be prepared to pay their balance back in full at the end of a month without interest, or have interest accrue on their debt if they cannot pay it off in full. In order to prepare them for the real world, show as much mercy as they will be shown when mommy and daddy are not their bankers. This should be a real eye-opener. For older children, once the basics have been drilled home and before they are unleashed out into the real world, parents should consider allowing them to open a secured credit card account with a very small balance – if they have a job and can make their payments regularly – without assistance from anyone else. Stipulate that every bill is to be paid off in full each month, so interest does not accrued on the account. While many a young adult has gotten themselves in credit card debt with the issuance of a credit card, the secured card makes it more easily manageable because they can’t spend what they don’t have available. In addition, it helps them understand the concept of paying off a balance to have credit available for future purchases. The first time the bill is not paid off in full and the realization hits that interest is eating up their available monthly credit, could be more educational than anything mom or dad could have explained. Supplying children with a more solid understanding of finances in this current economic world should not only help them understand the concept, but may even make the lives of parents a little easier. Parents know money really does not grow on trees, magically appear, or is available in never-ending supply (at least not for the majority of the population), but children have no clue. Some of the best lessons are learned through first-hand experiences. Helping children understand the basics while applying the principles, could go a long way towards keeping them financially healthy in the future.

Kim Green-Spangler, B.S. Ed and M.S. Eng, is a freelance writer, wife and mother. Her niche is writing articles pertaining to family life, fitness, parenting and home based businesses.