Teaching children about money. Ask a child where money comes from, and he’s likely to answer, “Mom,” “Dad” or “a machine.” Much like the old question “Where does milk come from?” and city kids’ common response, “the store,” many children today have little notion about how money is acquired or managed. It is little wonder. In a world of direct-deposit paychecks, online banking, drive-through ATMs and payment by debit or credit cards, even adults have begun to think about earning and spending money in abstractions. Yet children 2 years old and younger are already being bombarded with commercial marketing messages about buying what they want when they want it. Peer pressure and popular culture create an appetite for buying everything from the “right” breakfast cereal to the “right” jeans label in children as early as pre-adolescence. By the time children enter their teens, marketers’ fierce competition for their dollars has put credit cards, pricey electronics and the vehicle of their choice on their “must have” list.

Because they are not born with native money sense, children need basic guidance about how money is earned, how it is used, how it is saved and how to avoid financial trouble. Although most Americans believe that financial skills should be part of an educational curriculum, the reality is that fewer than half of American schools offer any economic education at all. Some existing programs are being dropped because of budget squeezes and other pressures. Clearly, it is up to parents to step into the role of teaching their children about money. And according to a wide range of education experts, parents may be the best money educators anyway, given their almost unlimited opportunities to teach by example.

But what is the most effective way to teach money skills? How do you help children understand seemingly complex ideas that even adults may struggle with? How do you get the attention of children who live in a high-speed, high-tech, consumer-oriented world? And how do you help them learn healthy values about money? Research shows that kids don’t fully grasp the concept of money as a method of exchange until they are about 9 years old, but lifelong habits are established much earlier. Parents, say the experts, can –- and should –- start teaching children as young as age 2 about money in age-appropriate ways. First lessons –- “money has value,” “saving gets us what we want,” and other messages — form the foundation for more complex skill building as children grow older. Parents’ money “curriculum” can be quite basic. Every financial skill a child –- regardless of age –- needs to learn is likely to fit into a few big ideas: setting goals, earning money, spending money wisely (budgeting) and saving and investing. More advanced ideas, such as using credit responsibly and protecting assets, are probably not as appropriate and understandable until children are in high school.

Each of these major topics can be taught progressively. Start with simple lessons for very young children, usually delivered in the form of a game or fun activity, and continue to reinforce the idea for older children with real-life experiences that fit their age and interests. Even if you recognize your own financial shortcomings –- “I’m in debt up to my ears!” “I can’t seem to save enough!” “I’m insecure about investing!” –- your teaching efforts will reap rewards. After all, there is no better way to learn than by teaching.

Teach by example
Of course, the most potent form of teaching is by example. Your children’s best money lessons come by watching how you use your money – purchasing groceries, clothes or gifts; paying for auto repairs or haircuts; making contributions to a charity or church; saving money for a special trip, a large purchase or just a rainy day. Discuss how you make money decisions. Let children see you compare products and services before you spend money. Avoid the temptation to “shelter” children –- especially older children –- from money discussions that might impact them. If the family is facing a financial issue, include children in a discussion about how it affects them, what financial sacrifices it might mean and what you are doing to manage the issue.

Remember that kids will mirror your own habits, so make sure you follow your own advice.

Teach by experience
Children learn about money more quickly when they have some of their own to use. Whether you give an allowance based on chores completed, provide a periodic stipend based on your child’s age or decide on another method to put money into your child’s hands, the important point is to give her an opportunity to make money decisions for herself, beginning at an early age. The concept that money can be exchanged for other things develops gradually. Expect some mistakes, knowing that the lessons learned from money blunders will have a high impact. Avoid criticism and be patient. Encourage your child to figure out what went wrong, help when necessary, and use mistakes as teachable moments. Talk with your children, not at them, and ask their opinion when you can. Also, be aware that each child has his or her own money personality and handles money in a different way. Your primary goal is help each child develop wise money management skills, gain satisfaction from its use and weigh values so he or she can make intelligent choices. Avoid the temptation to compare your children with other children or with one another. Even children of the same age have different levels of maturity, interest, attitudes, temperament and learning ability.

Teaching your children about money is a long-term process, and you will need some patience to meet the challenge. But remember that the bigger challenge is footing the future financial bill of costly mistakes and lost opportunities if you don’t succeed.

Best practices
Need some ideas about how to teach money skills to your children? Here is a sampling of recommendations gleaned from financial and educational experts.

• Set a specific financial goal as a family, and track your progress.
• Use board games such as Payday and Monopoly (especially appropriate for older children) as a springboard for lessons in real estate, taxes and general finance.
• Play the “match” game. Match a portion of the money your child saves (for example, 50 percent of the amount saved) from her allowance each week or month.
• Teach investing by allowing older children to select stocks of products they frequently use. Show them how to follow the stock’s price in the newspaper or online.
• Encourage part-time work when your child is in high school as a way for him to learn discipline, showing up on time and the important lesson of taxes.
• Explain the difference between needs, wants and wishes. Help children identify their own needs, wants and wishes.
• Give allowances and other income in denominations that encourage saving. For example, if the amount is $5, give five $1 bills and encourage your child to put aside at least $1 in savings.
• Use shopping trips to show children – in age-appropriate ways – about using money as a means of exchange, about comparing costs and about using a budget.
• Ask other parents to share their best money teaching ideas with you.