Having lived and taught in the US and abroad, I’ve noted drastic differences in the way students in different countries view and manage money. The truth is that money management is largely a cultural issue. Just as the Japanese grow up in a culture that favors almost compulsive levels of saving, Americans grow up in a culture that encourages consumption and debt.

What this means is that without conscious intervention, our children are likely to replicate bad financial habits that are culturally pervasive in the US and, arguably, are at the root of our current economic crisis. Even if you are a fiscally responsible adult, don’t expect that ethic or skill set to automatically transfer to your children. Culture is too powerful a force to overcome by passive example.

We have to actively teach our children, teens, and young adults financial literacy and discipline. If we don’t, we’ll be taking care of them when we’re old, instead of the other way around!

Here are a few ways to help your child, teen, or young adult develop fiscal literacy and skill:

  1. Allowance: Offer a predictable allowance and paid it on time like a salary. Be clear about what this is for, e.g. entertainment, gas, discretionary expenses. Help your child create a budget based on priorities and the amount of her allowance. Include savings goals as a part of the budgeting strategy if she has her eye on larger purchases.
  2. No Bailouts: If your child overspends, do’t bail her out with more money. It’s better for her to experience the consequences of overspending while the stakes are relatively low.
  3. A Debit Card*: Prepaid debit cards mean that when the mone’s gone, the money’s gone. They reduce the debt risk and interest of credit, and they give your child a way to review and assess spending habits.
  4. Real Time Tracking and Feedback: Be sure that you have access to your child’s, teens, or young adult’s (if you’re providing the cash) debit-card reports so that you can track expenditures and discuss any that are of concern. Real-time tracking will provide lots of teachable moments.
  5. Conversation: Growing up, I was taught that it was impolite to talk about money. In retrospect, I realize that financial reticence is often less a matter of etiquette than of awkwardness. Until parents are comfortable discussing finances with each other, it can be tough (and counterproductive) to discuss the subject with children. But rich, educated, open conversations about money can save your children lots of future grief.

*An interesting resource for using debit cards to educate children: www.billmyparents.com