There’s a really interesting new study by two researchers at Cambridge University in England that suggests kids’ spending and money habits are formed at a very early age – as young as about seven.  By that age, the researchers write, most kids recognize the value of money and are able to count it.  They’re beginning to understand that we must earn money in order to spend it.  And they’re starting to grasp the difference between wants and needs.

It’s a fascinating read.  The authors, David Whitebread and Sue Bingham, reinforce what many financial experts advocate – don’t wait until kids are teenagers to teach them about money and saving.  With so many adults living with the consequences of poor financial understanding – maxed out credit cards, living beyond their means – Whitebread and Bingham may be on to something.

Schools and families can play a part. 

Financial literacy, as it’s called, could fit in existing school curricula.  I can see how math class could accommodate subjects like compound interest and how credit card debt rises so quickly.  Social studies lessons could address the underlying role of business and government in our economy and why informed citizens make informed voters.  Writing class could examine the persuasive – but not always logical – use of language in advertising. 

There’s plenty parents can do at home, too.  Here are a few ideas

1. No need to make it scary or boring.Keep it simple and age-appropriate. 
2. Start with counting money.  For the littlest ones, the most logical place to start is with actual money.  Teach them about pennies, nickels, dimes, quarters, and dollars.  Count with the coins, which is, of course, an easy math lesson – counting by 5’s or 10’s, say, or subtracting a dime from a quarter.  Let them count the money for you – out loud – at vending machines and the grocery store.
3. Use their allowance.  Take some of the discretionary spending you put aside for them (for the occasional treat, for example) and give it directly to them to spend as they want.  Help them understand that when it’s gone, it’s gone, so it’s smart to learn budgeting.
4. Teach about “Spend, Save, Share.”  I like this pithy phrase, which I’ve heard financial literacy teachers use with simplicity and ease.  Kids get it.  They get to spend some of their allowance, save an agreed-upon part of it, and share some of it with a place of worship, charity or cause of their choosing.
5. Teach about wants and needs.  Kids can learn about the difference about wants and needsif we guide and support them. 
6. Be a role model.  Help them develop smart spending habits by being a smart spender yourself.  Remember, they do what we do more than they do what we say, so let them learn from your actions as well as your words.  Talk conversationally about how you save before you buy.  How you budget your own spending.  How you economize.  And how you allow yourself the occasional reasonable treat.
7. Allow for extra earning.  Motivate kids to learn a lifelong work ethic by letting them earn some extra spending money by babysitting, yard work, pet walking, and other helpful tasks.  They’ll learn the connection between work and pay, and they’ll feel the benefits of being helpful.
8. Show the wisdom of saving.  Let them see how interest allows savings to grow.  Teach them about compound interest, a potent motivator to save.
9. Show them the goodness of giving.  Help them decide on a way to share their money in good and helpful ways.  A small amount to an animal shelter, say, or to a children’s hospital can teach as much about compassion as it does economics.
10. Be patient.  Kids will make financial mistakes.  We adults certainly have done so, why shouldn’t they?  Keep an eye on them and their spending, keep the money talk going, and resist the urge to micro-manage the “spend” part of their allowance.  A couple of times running out of money will be more useful than your admonitions. 

The more “hands-on” experiences kids have with money, the more they see us handling money wisely and learning from our mistakes, the better their chances of being smart money managers when they’re older.