by Jacquelyn Lynn

Created on: November 11, 2008

Give Your Children the Gift of Financial Literacy

The recent subprime meltdown and the resulting increase in foreclosures has been an educational experience for the entire country, but one important lesson that isn't getting talked about much is this: Kids need to be financially literate. Report after report describes people signing mortgage documents they didn't understand and buying houses they couldn't affordtwo clear indicators of financial incompetence in action. What might these people have done differently had they been given the gift of financial literacy as a child?

While it's never too late to acquire financial education, it's best to start early, and preschool is not too soon to start talking with your children about financial concepts. Yet some adults find it as hard to talk to their kids about money as they do about sexand maybe even more so. Here's how you can help your children become financially literate:

Set a good example. Children naturally mimic their parents' behavior, so set a good example by becoming financially literate and using positive money management skills. Your words and actions should be consistentfor example, don't tell your children not to make impulse purchases they can't afford on credit cards and then do exactly that.

Talk about money. Whether it's during meals, while driving in the car, or while engaging in a leisure activity with your kids, talk about financial issues. Keep the conversation at an age appropriate level, but introduce subjects such as the economy, investing, interest rates, debt management, saving, charitable giving, and more. In addition to talking, listen. Encourage your youngsters to share their thoughts and feelings about money without fear of criticism.

Be honest. Kids should know the truth about the family's financial situation. It's not necessary to send a message of constant doom and gloom, but don't paint a picture that's rosier than reality. If you're financially secure now but have made mistakes in the past, share that experience with your kidslet them know that you struggled, and that they may have to as well. It doesn't mean they're failing, it just means they're learning some lessons the hard way.

Explain saving and investing. When children are young, you typically teach them to set aside a portion of their money for savingsfirst in a piggy bank, then in a commercial bank. As they get older, teach them about investing and how they need to learn to put their money work for them, not just earn a pittance

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