The five-cent lemonade stand or the door-to-door snow shoveling racket may be a child's first romp into the world of the market economy. But what's the next step, once the lemons are squeezed, the snow is removed and the money is collected? (These three principles apply to all financial decisions, making your money talk with your kids simple and effective. Learn more in The Only 3 Money Lessons Your Kids Need.)
IN PICTURES: 9 Ways To Go Bankrupt
Slowly, schools have begun teaching finance basics to their students. These theory-based teachings may provide presumptive education, but hands-on learning - involving other participants, debt and consequences - has yet to be fully explored on a large scale. And many of the options available for real-world money management trading come across as work - not play; tedious - not engaging. Thus, the lessons fall flat. So the question remains: How do we teach our kids about finances, before they're buried in debt?
From the Cradle to the Bank
Many psychologists and financial experts agree that children should begin learning about real-world finances before grade seven - when they're developed enough to understand the concepts presented, yet are not predisposed to the details. Without this knowledge, it's feared that students will enter into the world of debt without a bigger-picture understanding, and will carry their bad (or simply uninformed) habits into high school, college and adult life.
Over 54% of college freshmen hold a credit card, with an average balance of $1,301. This is despite the fact that people under the age of 18 need parental consent to even apply for one. That number may not seem overwhelming until you consider that many college administrators nationwide believe that credit and debt issues - not grades - account for the majority of college dropouts. (While college freshman may be academically prepared for school they often have a lot to learn when it comes to managing money. Don't miss 7 Expensive Mistakes College Students Make.)
Websites like Prosperity4Kids (P4K) have dedicated their services to teaching kids the importance of financial knowledge and "smart" investing. And it all begins with one of the most basic inventions that can be found in almost any home - the piggy bank.
P4K licensed the "Money Mama" piggy bank, which is essentially the same as a regular piggy bank, only it encompasses four coin chambers, not one. Children are encouraged to divide their "earnings," (allowance, chore money, gifts) into four categories: give, invest, save and spend – the basics of sound money management. This concept branched out into a number of other products, including books, DVDs and online education.
Kwedit's concept - allowing you to "purchase digital content and virtual goods now, in exchange for promises to pay them later," may seem like a baited business model. Basically, it operates as a virtual credit card that can be used to buy virtual food for virtual pets, and virtual clothing for avatars. And last year alone, the virtual marketplace earned over $1.6 billion. (Whether it's shoes for an avatar or a whole space station, the online market in virtual goods is bigger than you think. Check out The Virtual Market: What We're Buying And How Much We're Spending.)
Though the virtual credit broker specifically states that Kwedit is not for kids, many of the "products" that can be purchased are targeted at 12-14 year olds.
Kwedit boasts that it does not charge interest, and is simply a service for people without credit or debit cards.
The Old-Fashioned Way: Fake Gambling!
Possibly the most effective method of teaching financial education for kids is to make a game of it, and one of the easiest platforms for doing this is already in millions of homes in the U.S. alone. Hasbro's Monopoly offers enough structure (and enough customization) to teach the fundamentals of investing, ownership and debt - especially these days. With new (see: updated) boards, rules and add-ons, Monopoly can help teach money management without the kids even knowing it.
By creating a set of family rules - substituting the official rules of the game with "house rules" - players can make the game as much about education as they want. (Learning the basics and habits at a young age is vital to a healthy future portfolio. Don't miss 5 Ways To Teach Kids About Investing.)
While it's important for children to learn about financial responsibility, the movement does have its detractors, who feel that these methods are encouraging the youth to rely on debt, banks and credit cards to survive. Still, with the right guidance and knowledge and some common sense, kids can stand with their heads high in the world of finance, knowing they're ahead of the curve.
From Play to Pay
Whether we like it or not, credit cards and debt are here to stay. When the economy is good, we buy knowing that we can make the minimum required payment; when it's bad, we use credit as a cushion to supplement our regular income. And these habits aren't genetic - they're taught to us through observation of our family and friends, and through opportunities given by banks and lending institutions. But this isn't necessarily a negative.
For the majority of North Americans, credit will aid your well-being at some time, whether that's when it's time to buy a house, a car or save for your children's tuition. The trick is to get a head start in financial education, and not enter the race with a fiscal handicap.
Still feeling uninformed? Check out last week's business news highlights in Water Cooler Finance: Zombies File Taxes, Dead Bills Rise Again.