As parents, education is one of the most significant gifts we bestow upon our children and financial education is an important component of the total education package.

Our children’s education is one of our primary concerns. From their early childhood, we immerse ourselves in teaching midot and skills: to say “thank you,” to ride a bike, to tie their shoelaces, to say the appropriate bracha before a snack. As they grow, we seek the best yeshiva, the most innovative after-school programs and the most interactive camp, all geared to transmit our core values and beliefs to our children, all geared to give them the solid foundation they will need in order to be able to function as independent, responsible adults.

Financial education is the fourth “R” (responsible money management):

Just as we teach our children to say their ABCs and Alef-Bais, count to 10 or organize and clean their rooms, it is also our job as parents to teach them proficiency in money management.

Maimonides stresses that the greatest act of tzedaka is to give people the tools to continue on their own. With a nod to the Rambam, the Family Credit Counseling Service notes, “Give a child the latest iPod and it will be appreciated for a few months until the newer version is released. Teach a child how to work hard and appreciate the value of money and he will be able to afford many iPods in the future.”

Are our children sufficiently financially savvy? Jump$tart Coalition for Personal Finance Literacy conducted a survey to determine the financial awareness of more than 4,000 high school seniors throughout the United States. Astonishingly, the average score was a failing 52.3 percent, with only six percent scoring a grade higher than a “C.” With that in mind, many educators and financial professionals are suggesting that “remedial” courses in financial education be a requirement for all college freshmen. Proponents believe that the knowledge gained from this curriculum would be as valuable and basic as English 101 in preparing students for adulthood and future job security.

Children inherit their parents’ values by following examples and taking part in family discussions. financial education should have the same emphasis as learning the ABCs, primary colors and basic midot, which we teach at home even before our children start school.

In our homes and daily lives, we set examples of Torah values, cleanliness, organization in putting toys away, appropriate movies etc. However, through peers, neighbors and television, our children’s minds are open to the surrounding cultural attitudes toward money…which may not coincide with our own. “Parents are sometimes surprised what children have learned about money by watching television or by observing people’s interactions in a toy store,” says family therapist Chana Simmonds. “Parents and children need to talk about their feelings, values and beliefs about money.” As with the other values we hope to instill in our children, the best way to ensure that our children inherit our financial values is by being a positive financial role model, by sharing experiences and by open family discussions.

Educators stress the long-range benefits in integrating financial education into early-childhood education. “Childhood training in money management has never been more important!” says University of Florida professor of consumer education Marcy Harrison. “Children from every income level can—and should—learn the basics of personal finance before leaving home. Kids make mistakes, and that’s why it’s important to teach them to handle money very early. Otherwise, they may have to learn through trial and error when they get on their own, and the stakes are higher.”

We all make mistakes. We all are subject to circumstances beyond our control that put us in situations that we believe are untenable or impossible to deal with without risks. “Life happens,” as the saying goes. Having the tools to deal with an unforeseen circumstance also means knowing how and when to ask for help and where to seek it. This may be one of the hardest lessons we teach our children; it is certainly one of the most difficult for us to accept even as adults. (Please see Project Ezrah Offers Interest Free Loans box on page 67)

Joline Godfrey, author of “Raising Financially Fit Kids,” believes that these lessons are not only valuable but necessary, “regardless of a family’s financial status. It does not matter if a family is eking it out or if they are prosperous. It is valuable to be explicit about your values.”

Jonathan Clements, a journalist for the Wall Street Journal, concurs. “We are a generation of spenders raising a generation of spenders. Through early childhood education, we must give our children the skills that enable them to make sound financial decisions and plan for their future. Children should be able to recognize that if they engage in reckless, frivolous spending in their youth, it will catch up to them in years to come.”

Educators suggest that children acquire basic financial skills by their teen years. They caution that young adults lacking these basic skills will often make poor financial decisions, decisions whose consequence, a financial crisis, could take years to overcome.

Children are curious about everything their parents do. When they go with their parents to the grocery and see their parents spend money and get change, they become curious about that too. As they start to learn basic arithmetic and understand that 10-6=4 (or $10 minus $6 leaves you with $4), they become even more curious.

When is the “right time” to start teaching our children to be financially responsible? Begin early and at home. Most educators and financial experts believe that it is never too early to begin teaching children about finances. Fiscal education, they suggest, should start as soon as a child begins to ask you to buy them things. While “finances” may seem a strange term to bring into play here, it clearly describes the spending and saving skills a young child is capable of grasping, understanding and learning.

Be age appropriate and make it interesting, fun and creative. Children’s capacities to conceptualize and understand differ according to their age and development level. Younger children might need more concrete examples while an older child will be able understand and respect different perspectives.

Our values differ. Our financial limits differ. What is important to one family may be negligible to another. What is affordable to one family may be completely out of reach to another. However, the basic concepts of financial education are of benefit to all:

The ABCs of financial responsibility:

• A- Allowance. One of the first steps to learning about finances is having the ability to control money. Financial professionals recommend a weekly allowance as a basic tool in teaching financial responsibility.
• Earn extra money. Set up a list of age-appropriate household chores that your children can choose to earn extra money (you may want to limit your child to a specific number of chores per week). Detail each chore’s needed frequency, approximate time allotment and pay, explaining that chores can only be done after homework, room clean-up etc. (Over 75 percent of American children get their pocket money in payment for doing household chores.)
• B- Bank on it. Take your child to the bank and help him/her open an account(s) for their allowance and earned “salary.” Thereafter, take them to make deposits on a regular schedule, the first of every month, every other Friday etc.
• Save. Developing financial priorities is a direct outcome to learning how to save. Let your child save up to buy something he/she wants, even if you can afford to buy it for them.
• Making deci$ion$. Now that your child has an allowance and a bank account, the next step is to teach him/her the difference between what we need and what we want. Realizing that young children may be impulsive, the Wall Street Journal’s Jonathan Clements devised a few tricks of his trade: “Spending parents’ cash does not have much of an incentive to curb a child’s desire. Make them feel like they are spending their own money.” When his children would ask for a soda, Mr. Clements would offer them the choice: a dollar or a soda. “My children ended up drinking a lot of water!” More importantly, “They learned to budget and became more careful spenders.”
• Wants or needs? Oftentimes a child will save and save for an expensive “want” only to find out that the excitement over the much-anticipated new toy soon wanes. Next time, the new and improved model may not hold enough cachet for the child to give up all the hard-earned and saved money: This is an important lesson in understanding wants vs. needs and seeing the benefit of saving for future needs or wants.
• Real life lessons. Help older children learn how to budget and balance needs with wants. Give your teenager a six month’s clothing allowance for example. If all the money is “blown” the first week on designer boots, discuss their options (working with what’s already in their closet, doing chores for extra money etc.).
• C- Charity. Values learned at home are never one-sided. While training our children to be financially literate, there is a natural segue to discussing those in need. As part of a child’s saving plan, explain the concept of ma’aser and guide them to budget a percentage of their savings for tzedaka.

Again, this should be age appropriate. A younger child can put a weekly donation into his/her own pushka every Friday afternoon. When the box is full, help your child write a letter that will accompany the donation to the charity he/she has chosen. Or, bring the child to the charity for a “presentation.” (At Project Ezrah we try to make it “special” when a child comes in with a donation. Our goal is to make the child feel wonderful and proud.) An older child could save up for a goal-oriented donation (a month’s food for one of Israel’s Guide Dogs for the Blind.)

• No bad words. Understand that “expensive” and “budget” are not bad words.

Every family’s spending prowess has a limit. Let your children hear that a specialty food item, for example, is “expensive” or not in your “budget.”

• Family discussions. Include children in your budgeting discussions and decision making. Engage them in discussing how you could save for a vacation or stadium-sized TV (no movies or Thursday-night pizza outing for a month, for example).
• Savvy consumers. Children should understand the importance of evaluating a large purchase before actually putting the money down. Involve them in planning a significant family purchase or trip. Family discussions could include weighing the benefits/drawbacks of a planned large purchase and “comparison shopping.” This hands-on activity reinforces the benefits of “comparison shopping” and at the same time illustrates the pitfalls of “impulse buying.”
• Be honest with your children. Children keenly sense their family’s dynamics and vibes; even the youngest will pick up on any stress during a rough patch. Unaddressed, a child’s natural instinct might lead him/her to imagine dreadful monsters invading their home. If your family is in debt or even if you cannot afford something you want, they want or “everyone” has, tell them. Be honest. Children are more likely to help in reducing family expenses when they are included in discussions and understand the financial situation. Most importantly, in opening up the discussion you can reassure them that their home will always be a warm, loving and protected safe haven.
• Tell stories. Share those funny stories of your young adulthood. Stories are often employed in teaching midot. A Wall Street Journal financial editor regaled his children with stories about how he “Squeaked by on a junior reporter’s salary.” He engaged them with tales of “the beaten-up ’76 Camaro that used to stall if the traffic light stayed red too long!” He engaged his children by making the “lesson” interesting and giving them a point of reference.
• But everyone has a…(fill in the blank) Parents need to set limits for their kids; children need to know that their parents will not (and often cannot) gratify their every wish. If we could, we would all give our children the world. But should we? Lessons we give our children in how to deal with delayed gratification will last a lifetime and are a vital asset not only in financial responsibility but in basic life skills. America’s need for instant gratification has encouraged a credit card-based economy, leading many into debt. Conversely, self control and delayed gratification are associated with much more than putting pennies into a piggy bank. In his book, “12 Ways to Make Your Kids Financially Savvy,” Jonathan Clements stresses that self control and delayed gratification also lead to “things like succeeding in school and coping better with frustration and stress.” Indeed, studies have shown that students who have learned self control and delayed gratification do substantially better in school and score well above average.
• Wish. A good way to reinforce delayed gratification is with a “wish list.” Even if you might offer to “match funds” to their savings, let children formulate and articulate what they want, set out a savings plan (younger children will need a shorter-term savings plan) and work toward that goal.

It’s as easy as 1-2-3:

• Set an example of fiscal responsibility and point out the relationship between money and work.
• Emphasize social responsibility and add tzedaka to the budget.
• Allow your children to make financial mistakes and be able to learn from those errors while they are young (and the stakes much lower!).

Adding it up

Teaching our children about financial responsibility provides them with the foundation for a financially independent and socially responsible adulthood; is there a better legacy?

Some reading that might be of interest:

High School Financial Planning Program, http://www.hsfpp.org/

“The Totally Awesome Money Book for Kids,” by Adriane Berg

“12 Ways to Make your Kids Financially Savvy,” by Jonathan Clements

“Raising Financially Savvy Kids,” by Joline Godfrey

By Susan G. Alpert, Project Ezrah