5 Cool Ways to Teach Kids About Personal Finance

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Twin boys and piggy bank
Kids might know money doesn't grow on trees, but many still think it's free. Almost half of the 5-year-olds in an Australian survey of 500 children "thought their parents got free money from a machine in the wall after inserting a card," reports Essential Mums.

Even stranger, 18 percent of 7-year-olds surveyed thought buying something online meant it was free. Since the average cost of raising a child is already more than $245,000, you'll want to quash any ideas of magic, free-money-dispensing machines or free online shopping sprees.

The good news is that it doesn't take much to put kids on the path toward a healthy relationship with money, and that starts with communication.

1. Talk to Kids About Money

Yes, even the stuff you'd rather not admit to yourself, like your savings and debt, as well as what you earn from your job.

"Part of being a good role model includes being open about money (especially as kids get older) and not being afraid to share your money mistakes, in hopes that they won't repeat them," Citi personal finance expert Linda Descano told DailyFinance. Talking to kids about your salary, your grocery budget, even your student loans helps them understand family financial decisions in context.

In my family, we talked about money often, and my sister and I were involved in the family finances from a young age. My mom would let us take turns tracking the electricity meter to see how much we used, and each month we'd color in a chart showing how much we had saved on our bill that month.

If you're saving for something special as a family, involve kids in the planning and budgeting process -- a trip to Disney World might mean more to your children if they see you putting money away. They can also help suggest ways to help save more money toward the trip, like returning bottles and cans, finding grocery coupons or walking the neighbors' dog.

As for when to begin this conversation, financial expert Susan Beacham suggests starting pretty young. "Children as young as age 4 associate the visible accumulation of coins with the abstract concept of saving," she notes. You may not want to share your salary with your 4-year-old, but consider having her help you plan your grocery list.

2. Give Kids an Allowance and Offer Goals

A classic approach to teach kids about money is to pay them to do work around the house or other tasks to earn a regular allowance. This money can motivate children and help them learn about their spending priorities.

Leisha Kelsey, a mother of two, revolutionized the chore-allowance model by adding a "home store" of toys and games coveted by her young kids, with dollar amounts attached. "I was being tortured patiently waiting for them to choose something [at the store with their allowance] when I thought, it would be so much easier for them to work for what they want if they know exactly how much it would cost and how hard they would have to work for it."

Instead, she purchased a few items she knew her kids would love and put them on display at home. When her kids get their allowance every week, they count up their money to see if they've earned enough to buy their desired toy from "the store."

This innovative technique has also led to great discussions with her kids about shopping around. "[It] has also started discussions like, 'I can, but also know that I can get it for $5 less at the other store, do you still want me to get it here or should I wait and pick it up next time I go there?'" explains Kelsey. "Of course they want the best price possible because it makes it easier to earn."

3. Let Children Play Money-Focused Games

If your kids are always grabbing your smartphone or tablet, why not offer them a game that combines financial literacy with a fun challenge?

Renegade Buggies, a free app for kids, launched in February for iOS and Android. "In Renegade Buggies, players navigate a digital course and make real-world decisions in the midst of addictive fun: grab items from a shopping list, collect coins and coupons and watch out for obstacles -- all with the goal of saving as much money as possible," explains the press release.

Looking for more options? You'll find a dozen other games and resources to help kids grasp major financial lessons on the popular blog The Pragmatic Mom. One game, Bite Club, allows teens to learn to save for retirement while running a vampire nightclub after graduating from Vampire University. (Thanks, Twilight!)

4. Teach Them Extreme Couponing -- Kid-Style

One mom gave her second- to sixth-grade kids a great incentive to clip coupons: For every coupon of theirs she used during her grocery shopping, she added that amount to their allowance.

"The kids quickly learned which coupons were used most frequently and could sometimes earn $5 a week or more in spending money," she wrote to Hints From Heloise. "The cutting helped their fine motor skills, and they learned about the calendar, counting, shopping habits (bad and good) and brand recognition. They also gained an awareness of budgeting and the prices of household goods."

5. Let Kids Invest in Stocks

Kids may be able to understand the stock market around age 13 or even earlier. Have them select one or several stocks in which to invest, and consider using cold-hard cash from their allowances rather than make-believe money to help them fully grasp their investment's potential growth or decline.

When you're ready to pick stocks, experts suggest picking names familiar to your children, such as McDonald's, Coca-Cola, Chipotle Mexican Grill or other favorite companies. Get started by asking them a few questions: What are they interested in? What has potential? Teach them to check out each stock's recent performance online.

The Next Steps

Once you're confident in your kids' financial skills, consider KiDebit, a smartphone app that creates a virtual debit card for kids. Parents can add to (or subtract from) the balance as their children earn or spend money, eliminating the need to keep cash on hand for allowances and helping kids learn about the true value of their money and how to spend it well.

What's your favorite strategy for teaching kids about personal finance?
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