Teaching Your Child Money Habits for Life

Financial responsibility goes beyond the porcelain pig.

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For most adults, the first brush with money management came in the form of a porcelain pig. A nickel here or a dollar there for every chore completed or good deed. Financial responsibility, for the most part, stopped with the piggy bank. Many of the Echo Boomer generation—those born between the 1970s and early 1990s—agree that learning how to spend, save, and invest wisely just wasn't a part of life's lessons growing up. "I wish I understood the value and attributes of money at a young age," says Christopher Rogers, a 33-year-old, New York native and associate director at a financial services firm. "Although I grew up around a successful family, no one instilled the value of money in me until I began to do it myself, and fairly recently, too."

Indeed, piggy banks may not be enough to impress healthy saving habits in young people. Especially these days. Many Americans are kicking themselves for being reactionary to the Great Recession, scrimping and saving only after things hit rock bottom. Now faced with a deteriorating job market, fragile housing market, and the threat of a double-dip recession, more consumers are reshaping their spending habits and are showing a renewed commitment to saving—behavior we haven't seen in recent decades. The generation born during the Great Depression that went on to fight in World War II, which Tom Brokaw deemed "the greatest generation any society ever produced," had to pull itself up by its bootstraps to put food on the table. At the same time, they bequeathed to subsequent generations a life with considerable aplomb and privilege, distorting notions of what it means to work hard, survive, sacrifice, and value every dollar earned. According to a Fidelity Investments study, on average, Generation Y individuals hold more than three credit cards with one-fifth carrying a balance greater than $10,000 and 1 in 4 believing they will never be free of credit card debt during their lifetime. Parents nowadays are learning from their own mistakes, and finding themselves more mindful than ever of passing down solid financial habits to their kids.

[See 11 Ways to Prepare for a Double-Dip Recession.]

It's clear that children today lead a more extravagant lifestyle—laden with trendy wardrobes, smart phones, video games, and other expensive gadgets—than their parents did. And it doesn't help when parents simply dole out cash with no strings attached. Upon graduating high school and flying the coop, many teenagers are likely to be walloped by exorbitant debts, making it extremely difficult to purchase a car or home down the road due to poor credit.

So, how can you teach your children the importance of saving, accounting for their spending, and self-discipline? Here are some money management strategies and tactics for parents that can help kids take control of their financial futures:

Be committed. "Like mastering a new language, developing athletic skills, or becoming a master musician, financial fluency requires time, practice, intention, the acquisition of financial language and values," says Joline Godfrey, author of Raising Financially Fit Kids, who stresses the importance of being committed to your child's financial literacy. "This is a process, not an event, and parents who begin early find that good financial values and behavior are more deeply integrated into children's life skills and habits if they are as consistent and clear about their financial expectations as they are about brushing teeth and doing homework … Most parents understand that a couple of hours on the tennis court would not be enough to prepare a young person for competition. Similarly, a badly managed allowance and a few lectures on 'spending less' are not a financial education!"

Money does not grow on trees. Nor does it magically appear from ATMs. Children should learn from a very early age that they have to work to earn money. Ask them: "Do you know where money comes from?" If you go to the bank or withdraw money from an ATM, explain to your child that it is your money coming out of your bank account and that you worked for that money.