6 lessons that turn kids into money-savvy adults
All parents hope their children will grow up to become independent, financially savvy adults.
Fortunately, there are things you can do now to teach your children to handle money the right way. With any luck, your lessons will work so well that Junior will become rich enough to take care of you in your old age.
Click ahead for six ways to boost your kids' financial intelligence.
Encourage them to discover the hidden costs
Give your children projects that allow them to figure out the value of a dollar on their own.
Economist David Stevenson of Delaware's Caesar Rodney Institute used this approach when his daughter wanted a trampoline. First, he had her comparison shop for different models.
Then, he had her call the insurance company to find out how much a trampoline would add to the family's homeowners insurance costs.
After the chat with the insurance agent, she told her father, "Never mind."
And the lesson lasted. When Stevenson's daughter was a little older, she successfully used the research approach to show her proud father how she could afford the smartphone she wanted.
Teach them the value of patience
When Rod Griffin, director of public education for the credit reporting agency Experian, was a child, he wanted a dirt bike. It took him two years of saving, but at age 12 he achieved his goal -- much to his mother's chagrin.
Flash forward many years, and Griffin decided to teach his own young grandchildren a lesson about the need to be patient when saving.
One day, Griffin's grandchildren found a quarter stuffed into the seat of his car. They wanted to use it to buy ice cream. So, Griffin encouraged them to save the quarter and to continue to look for money until they had enough for their sweet treat.
Occasionally, Grandpa hid more money in the seats. As the grandchildren found the coins, they kept track of how much they discovered until they had enough for a cone.
Be the Bank of Mom or Dad
In the real world, banks don't hand out free money -- and neither should you. If children need more money to buy something than they have in their allowance, let them borrow it -- with interest -- from you.
That way, they will learn an important lesson about the sting of carrying debt.
You can also teach them that it's much better to be the lender than the borrower. Every now and again, borrow money from your kids and pay them back with interest.
If you borrow $5 at 10 percent interest, you will eventually pay them back $5.50. Explain that the 50 cents is like paying rent to use the money.
Don't be surprised if they catch on really fast. Tiffany "The Budgetnista" Aliche, author of "The One-Week Budget," says her father used this approach, and it wasn't long before Aliche's sister was haggling with him in an attempt to charge a higher interest rate.
Give them a "credit card"
Before your heart starts palpitating, understand that we are not talking about a real credit card. Instead, make up an index card that has a spending limit written on it -- for example, $40.
When your child really wants something -- but hasn't saved enough in allowance to pay for it -- ask him or her to use the "credit card" to get it. Again, make sure the child pays you back with interest. And as with a real credit card, make sure the interest payments continue to accumulate the longer the debt goes unpaid.
Keep a running tally on paper so it's easy for the child to follow how the debt is stacking up.
In the meantime, do not forget to model good behavior. Make sure your children see you paying for more things with cash.
Offer them a virtual job
A couple of years ago, the Texas Scholars Program challenged eighth-grade students to create a budget based on the salary they would have if they worked in certain careers.
These students often learned the income from their "job" wasn't sufficient to put food on the table and cover the rent.
Many parents likely would be tempted to repeat the experiment by removing everything from a teenager's room and make the teen rent it back based on the earnings of a minimum-wage job. But there is an easier way to teach the same lesson.
TheMint.org -- a website, developed by Northwestern Mutual Life Insurance Co., that offers tools to teach children to manage money wisely -- has a program that shows youths how they can live on a budget at different pay grades. It even throws in unexpected expenses, such as a car breaking down, to make the experience more realistic.
Let them learn the hard way
Sometimes, a painful lesson is the best teacher.
When Rebecca Lusk was a child and her family went on vacation, her parents put her daily spending money in envelopes. She was free to spend the money in any way she chose.
On the first vacation, she spent all her money on day one. She was sorry later in the week, as she found other things that she wanted to buy -- and that she preferred to the items she purchased earlier
On the next vacation, Lusk changed her strategy. She created a budget and reviewed her spending options more carefully. At the end of the trip, she even had some money left over.
Today, Lusk is a junior at the University of Delaware who rates her money management skills as "pretty good." She works as a resident adviser in the dorms, sets financial goals and weighs every purchase carefully.
Clearly, she has learned her financial lessons well.
"Money is a precious thing," Lusk says. "You work for it."