08/27/2014 07:25 pm ET Updated Oct 27, 2014

Got Kids in Grade School? Start Their Financial Education Now!

Dear Readers,

The new school year is just around the corner, and as I think about the importance of financial education, I want to remind all parents -- and grandparents -- that it's never too early to help kids learn about money. So as your elementary students get into the basics of math, why not apply some of those lessons to real-life situations. Here are some ideas to help make the numbers add up to some practical skills.

Bring addition and subtraction to life with an allowance
When kids first learn about addition, it can be very eye-opening. Numbers aren't just squiggles on a page, they have real meaning! So why not use this 'ah-ha' moment to give your kids a chance to do some practical addition and subtraction?

An allowance gives kids the very important opportunity to handle and manage money. Whether or not you tie an allowance to chores is up to you. Some people believe that chores are a family responsibility that shouldn't be related to reward. But others feel strongly that to make an allowance meaningful, it should be tied to some type of responsibility. Whatever you decide, it's important to be consistent and to explain the 'rules of the road.'

Also, when you give your children an allowance, be clear that the money is to be used for some expense of their own. Maybe it's a trip to the store, or as kids get older, maybe it's for lunch money or entertainment. Be sure they understand that you expect them to keep track of the money, spend it wisely, and make the addition and subtraction work. Even a six-year old can learn what it's like to save two dollars, then go to the store and buy a treat and come home with the change.

Make math problems real with savings goals
Think of the old word problems we all had to solve. They usually involved something like "If you get an allowance of $10 a week and spend $7.50 a week on lunches, how many weeks will it take to save $25 for a special outing?" To me, the learning opportunity here isn't just the math, but the idea of saving for a goal.

So as you give your kids their own money to handle, help them also set some savings goals. Start with something they can save for short-term. That will make the goal real and give them a sense of accomplishment when they achieve it.

Then introduce the idea of longer-term goals, maybe a school trip or a big-ticket item. Suggest that each week or month they figure out what they will spend and what they will save. You might suggest that they set aside a certain percentage of their allowance (another important math concept) toward that goal. As they get money gifts, have them divide those, too, between spending and saving.

Hopefully, you'll be getting your kids into the savings habit early and at the same time, introducing the concept of budgeting -- both crucial lessons at any age.

Teach the power of multiplication with a savings account
The power of compound interest -- even in our low interest-rate environment -- is an important lesson. Over time, money that earns interest will grow -- and if there's one thing kids have, it's time.

So as your children begin to accumulate some savings, help them open a savings account. Stress the importance of keeping the money in the account and letting it grow. Let them make their own deposits into the account and help them check their balance periodically. Even earning a few cents can be exciting.

You might also introduce your child to your banker. Feeling comfortable in a bank at an early age and having a personal contact can set your child on a path of confidence and control that will be invaluable later on in life.

Take it beyond the numbers
Money is about numbers, but it's also about values. As your kids learn some of the practical money skills, be sure they also learn the bigger ideas of responsibility, resourcefulness and sharing. Talk to them about your own goals, how you budget and how you save. Help them understand that you have to make choices about how to spend money, both as an individual and as a family.

And also teach them about the importance of giving. If you have a favorite charity that you support, tell them about it. Suggest that they, too, could contribute a bit of their money to a charity that might be meaningful to them, such as a local food bank or animal shelter.

So many parents shy away from talking to kids about money, but to me, it's incredibly important for creating financially knowledgeable and independent adults. If you haven't done it yet, whatever your kids' ages, use the start of the new school year as a catalyst to get the conversation going. You'll likely find that it's an exciting learning experience for all of you.

Looking for answers to your retirement questions? Check out Carrie's new book, "The Charles Schwab Guide to Finances After Fifty: Answers to Your Most Important Money Questions."

Read more at You can e-mail Carrie at This column is no substitute for an individualized recommendation, tax, legal or personalized investment advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager.


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