Beyond The Tooth Fairy: Money Basics For Kids

'They put the full $100,000, plus margin, into just three stocks. One started declining, so they cashed out and put the proceeds into the big winner: MTC Electronic Technologies, which they bought at 634. It went up to 2712. Thanks to that move, the portfolio was worth $350,264 and change after 10 weeks."

A grateful client talking about his brilliant money managers? No, this is Paul Noack, an economics teacher at Marquette High School in Milwaukee, describing three seniors under his tutelage. The boys were playing the Stock Market Game, an educational competition sponsored by the Securities Industry Assn. (SIA). The trio beat 2,300 other Wisconsin teams this fall and won a trip to New York City, where they toured the exchanges and hobnobbed with market specialists. Says Gloria Talamas, who directs the game for the SIA: "We want young people to understand how the market system works."

Even if you don't relish the idea of your children as stockpicking tycoons, most parents are concerned about teaching kids the principles of sound money management. Knowing the value of a dollar at an early age is more than just a safeguard against becoming spoiled. Parents who foster good habits, such as careful spending, regular saving, and long-term planning, equip their kids for a lifetime of financial ups and downs.

WORK-FOR-PAY. Children are ready to learn about dollars and cents around the same time they master basic counting skills, usually by age three. Picture books and play money can help teach how bills and coins are denominated. If parents then point out at the supermarket that real money can be changed not only into itself but also into things like juice and cereal, kids grasp the concept of legal tender.

In fact, Neale Godfrey, creator of the First Children's Bank at toy retailer FAO Schwarz and author of The Kid's Money Book (Checkerboard Press, $12.95), a question-and-answer guide to banking, credit, and the stock market, says three-year-olds are not too young to earn an allowance and make spending decisions. "Kids are born with the 'I want, I want' syndrome," she says. "You have to teach them there's no entitlement program." Godfrey says kids should be paid for extra household chores, and in amounts that buy something. Letting them make purchases--taking into account restrictions on chocolate or BB guns--teaches children that money creates choices and that they're responsible for choosing well.

Kids who earn their spending money learn the importance of work-for-pay. But you should also teach them the rewards of deferred gratification: how setting aside a $3 allowance for three weeks lets them buy a bigger toy than if they spent the money right away. "This is a huge lesson," says Godfrey. The earlier kids learn the discipline of saving, the easier they'll find it later in life. One comprehensive resource for parents is MoneySkills: 101 Activities to Teach Your Child About Money by Bonnie Drew (Career Press, $9.95). Games and activities are organized at three learning levels for ages 3 to 12.

A bank account and savings passbook encourage young children to manage their resources responsibly. Institutions with relatively low minimum balance requirements, such as credit unions and regional savings banks, are the best bets for beginners' accounts. Urge your kids to salt money away regularly, even if it's only a few dollars a month, and explain how the bank pays for use of their money in interest. Most children get excited when they see their funds grow.

Once they start school and become sensitive to social status, kids need to learn a more subtle lesson about money. While it's common for children who have just understood the notion of monetary value to become obsessed with what things cost, parents need to emphasize that "cost" and "worth" are not synonymous. Mary Susan Miller, education expert and author of The School Book, calls this "keeping money in its place."

Many eight-year-olds are ready to broaden the picture of how money works in the world. Unfortunately, economics is seldom taught in the classroom. A few popular board games may help children grasp the basics of supply and demand, but not without a little parental guidance. For example, unless you explain why buying up an entire neighborhood allows a real estate investor to charge high rents, the beloved Monopoly is just an exercise in greed.

GOOD DEEDS. Another classic, The Game of Life, is more self-explanatory. Players decide whether to go to college or begin a career right after high school, whether and when to marry and procreate, and how to spend their loot. "It gives kids a concept of the financial challenges we face," says Milton Bradley spokesman Mark Morris. Players win by accumulating the most wealth--but that doesn't mean the most cash. The game was updated last year with "life tiles" that award monetary credit for good deeds. Again, parental commentary will enhance the game's educational value.

Like adults, kids display varying degrees of interest in being their own bosses when it comes to earning money. While some may be happy to work a paper route or paint neighbors' fences, others can't wait to go into business for themselves. If your children show signs of entrepreneurship, educators say you should encourage them without allowing money-making to consume their time completely. If you own a business and hope to pass it on, you may want to give your kids fairly responsible jobs that make them proud of their stake in a long-lived enterprise.

Two useful books for budding business owners, Terri Thompson's Biz Kids Guide to Success (Barron, $4.95) and Linda Menzies' A Teen's Guide to Business (MasterMedia, $7.95), give step-by-step instructions on turning ideas into actions, getting seed capital, and even writing a business plan. Thompson's book includes worksheets and a glossary; Menzies' also covers job-hunting.

A hands-on way to introduce children to financial markets is to make them a present of several shares in a company they know and like. You can explain to a fashion-conscious daughter in junior high that she now owns a small piece of The Gap, for example, and gradually clarify the link between the retailer's profitability and her stock's value. When she wants to know how Gap shares are doing, teach her how to look up prices in the financial pages. When The Gap pays a dividend, explain the benefits of reinvestment.

TANDY TREAT. Stock in companies that reward shareholders with discounts, coupons, or gifts along with dividends make especially attractive first investments for kids. For instance, Wrigley mails its shareholders a 100-stick box of chewing gum every December. Likewise, owners of Tandy stock get a 10% yearend holiday price break at Radio Shack, whose battery-powered games and toys are popular with children.

Games that replicate the way markets work may sound advanced for a beginner. But the SIA's Talamas says that even fourth-graders play the Stock Market Game in the classroom. Teachers help teams of three to five children pick stocks by asking them what they drink in the morning or which videos they like best. Players are encouraged to watch nightly business shows on TV and to follow general news. As they track their portfolios over the 10-week game period, they quickly learn how the market responds to different stimuli.

The three winning seniors from Milwaukee were first-time players--in their first economics course. "Mr. Noack said we should look for stocks trading between 5 and 15 in a shallow, speculative market," says team member Richard Thickens. They picked MTC when they read that the electronics company had a jump on cellular-phone business in China. While the boys are proud of their success at the game, none says he intends to pursue a career on Wall Street. But when the time comes for them to invest on their own, they'll be way ahead of the pack.

      Magic-Money Machine           Like a miniature cash machine, with a key-
      Fisher Price, $20.99          pad and tiny safe. Includes cash card, 
                                    wallet, and play money
      The Money Book                A combination primer and interactive toy,
      & Bank                        with slots for coins and bills and easy
      By Elaine Wyatt and           explanations of how they're denominated
      Stan Hinden 
      Tambourine Books, $11.95
      The Money Factory             A battery-operated savings bank that
      Troll Learn & Play, $24.95    displays, sorts, and dispenses coins
      Ages 5 to 12
      Made for Trade                Players learn how the economy of a 
      Aristoplay, $24               colonial town in New England worked 
      Mall Madness                  Marketed to girls, this game encourages kids
      Milton Bradley, $30           to shop around for sales and bargains
      The Allowance Game            The first to save $20 wins this board game,
      Toys to Grow On, $14.95       which simulates a child's cash flow: Mow 
                                    the lawn, earn $2.25; overdue library 
                                    book, pay 60 and lose a turn
      The Game of Life              An old favorite, updated last year to include
      Milton Bradley, $13           nonfinancial factors. Now you get 
                                    monetary credit for adopting twins or 
                                    recycling trash
      Sophisticated games
      A Train                       A computer game for PC, Macintosh, or 
      Maxis, $69.95                 Amiga. If players run the railroad profit-
                                    ably, they can buy more businesses
      Pit                           A card game. Players scream like commod-
      Parker Bros., $7.50           ities traders, trying to corner the market in
                                    wheat, barley, cocoa, etc.
      Stick the IRS                 Drill for oil, buy a baseball team, build ski 
      Courtland Playthings,         condos, and get audited
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