Can Your Kids Handle Money? Start Teaching Children to Spend and Save Wisely

Giving children money so they can purchase their own back-to-school items -- such as clothing and supplies -- is a great way to teach them about fiscal management, she added.

Bear in mind that most children model their financial behavior on their parents', so how parents handle their money directly affects how their children will, she said.

Be Honest About Your Finances

The recession has changed many peoples' lives. While parents may be very uncomfortable talking to their children about money -- especially since so many people are either out of work or struggling to pay their bills -- Hobson said the economic downturn provides a good opportunity to address anxiety that their children may feel because of what they see in the news.

About a third of children are worried that their families may not have enough money, Hobson said, citing studies.

If parents have lost jobs or greatly reduced incomes, they should have frank discussions about their new financial reality with their children, Hobson said.

For example, if one parent has lost his or her job, the conversation should acknowledge that, but should emphasize that the other parent is still employed and the family would be OK but would need to cut back, she said.

Children will want to help out in these situations, she said, adding that a good way to do let them do so was to eat out less.

Financial hardship can teach children to be savers, she said, pointing out that it did for children who lived through the Great Depression.

New Government Program

The Department of Education and the U.S. Department of the Treasury have designed an awards program intended to increase high school students' financial literacy, Hobson said.

Through the National Financial Capability Challenge, students will learn the basics of personal finance.

Late this month and next month, students will take a voluntary exam to test their knowledge. Top scorers will earn certificates, while schools and states with high participation rates will get special distinction, she said.

At last count, more than 6,000 schools had signed up to participate, she said. Hobson said she was excited about the program, and said she believed it would be useful for teens.

For more information about the program, go to www.challenge.treas.gov

Mellody's Extra Tips

• When you speak to your children about the family's finances, do not use figures of speech or dark humor. They may actually take it literally. Also, turn off the TV once in a while. Constant doom-and-gloom stories about the economy do not help the situation. If they happen to see one of these stories, explain it to them.

• Even if you are not adversely affected by the downturn, make it a teachable moment. For example, for teens, just showing and explaining articles to them about the foreclosures and bankruptcies could help them understand the importance of not becoming overextended. Even if your child is not directly affected, their friends may be, and your lessons may help your children to better understand their friend's situation.

• Take your children shopping with you whenever possible. It's a good way for them to observe your behavior and it will teach them valuable shopping techniques, such as comparison shopping.

• Be sure to put accounts opened on your child's behalf in their own name, if possible. This creates a sense of ownership. This sense of empowerment will lead to good lifelong money management habits.

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