Family Matters

Ditch the Piggybank. Teach Kids Financial Literacy Instead

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“Is money important?” my 3-year-old asked this week. I answered truthfully with a hearty “Yes.” I explained it to her simply, telling her that we need money to pay for our house and our food and her ballet class. Maybe it’s because we’re trying to claw our way out of a recession, but financial entrepreneurs seem to have jumped on the fact that, historically, parents haven’t done a very good job of teaching their kids to manage money.

And so, piggybanks, around for ages, now have a new twist: you don’t just collect pennies anymore; you manage them — divvying them up between saving, spending and charity. (More on When Parents Favor One Kid Over the Other, Is It Okay to Admit It?)

The issue of money and why we need it has come up a lot in our household lately. My 6-year-old is smitten with the idea of selling anything she doesn’t like anymore, from cast-off pebbles in her rock collection to formerly beloved dolls. Recently, she channeled her commercial spirit into doing good — creating artwork and selling it on the street to raise money for Japan.

Where should the money she raises go? First stop: her Moonjar. A three-piece tin box, the Moonjar does the heavy lifting of creating a money-savvy citizen of the world for you. Each container is labeled “spend,” “save” or “share.” My husband found out about Moonjars when the company became his client; he told me about them because we’d been struggling to figure out how to instill smart financial habits in our kids.

Mary Ryan Karges, Moonjar’s CEO, says 13 states have financial literacy educational requirements — but not until high school. “That’s too late,” she says. “Our notion is that if you start teaching save, spend, share when kids are young, they’ll grow with that. If we teach save, spend, share with the same vigor that we teach stop, look, listen, we won’t run into so many financial problems.” (More on Time.comShould Radiation from Japan Scuttle Spring Break in Hawaii? A Mom Agonizes)

According to the Jump$tart Coalition for Personal Financial Literacy, 45% of college students carry credit card debt (the average debt is upwards of $3,000). That’s hardly surprising considering that just 21% of students between the ages of 16 and 22 say they’ve studied personal finance in school. Parents aren’t picking up the slack, either: just 26% of kids ages 13 to 21 say their parents taught them to manage money.

Any parent who’s ever strolled the aisles of Target with a kid begging first for a Pillow Pet, then for Silly Bandz, knows the drill: no, no, no, O.K., fine, but just this once. But meting out allowance, as my husband and I are finding, reframes the dynamic.

“It changes that moment in the store from, ‘I want that,’ to, ‘How much money is in your spend box?’” says Karges.

Teaching kids the discipline of saving — what my dad called “delaying gratification” — is as vital as teaching them to read and write, says Lori Mackey, founder of Prosperity4Kids, which sells products she created because parents told her they didn’t know how to teach their children about money. (More on Time.comWhy Having Kids Is Bad for Your Health)

“If you get straight As in school but you have no ability to understand financial literacy, you’re going to fail in life because you will never have control of your financial situation,” says Mackey.

Like Moonjars, Prosperity4Kids sells a piggybank with different compartments for saving, spending, charity — and investing. Investing with young kids doesn’t have to be abstract; Mackey advises explaining to kids that they can actually own a piece of the company that makes their favorite toy.

“We’d never take a child and say, ‘Read a book,’ before we teach them the alphabet,” says Mackey. “But we give a child a credit card with no education. It’s all about creating habits.” (More on 5 Ways Parents May Be Sabotaging Their Kids’ Health)

Along those lines, our 8-year-old gets $1.50 weekly, our 6-year-old gets 90 cents and our 3-year-old gets three pennies, divided equally between saving, spending and sharing. We consider it only a matter of time before the youngest — she who wondered aloud about the importance of money — asks for a raise.