Carrie Schwab Pomerantz Money-Smart Families

From an entirely personal, even selfish perspective, I dread the day my oldest child -- now 18 -- heads off to college.

If you have teenagers preparing to leave the nest, you probably know how I feel. Naturally, I want him to find his path in the real world, the path to work and a life he enjoys; I want him to become independent. But I'll miss him, I'll worry about him, and I'll wonder if I've prepared him well enough for the challenges of adulthood.

Teaching Financial Literacy

One of those challenges has to do with money. My son, along with my two other children and every other kid out there, needs to know how to handle financial matters responsibly. And he needs a set of financial values -- a framework for staying grounded in an affluent society and an age of ever-increasing consumerism.

These topics aren't taught in school, though I'm convinced they should be. And even though personal finance is very much in my blood, and my husband and I have been teaching our kids about money matters since they were quite young, I'm convinced we could have done more.

But it's never too late to teach your kids about the challenges of money. What follows are some ideas for giving your children the values and the tools to make good financial decisions about budgeting, spending, how to use credit, and investing.

Dollars and Sense

When my father was a boy, the lesson to be learned was "the value of a dollar." While that may seem a bit archaic in today's world -- even a metaphoric dollar hardly holds much value these days -- it's still a great concept.

If you want your child to succeed in building a responsible financial life, he or she needs to understand the value of money: The challenges of earning it and spending it prudently, and the challenges of saving it and investing it for the future.

One of the best ways for young people to grasp the value of a dollar is to get a job. They'll learn the basic responsibilities of the working life, and the importance of showing up on time every day and doing their best. They'll also experience the rewards of getting paid. Getting a taste of the world of work at a young age can be immensely valuable -- a superb first step on the journey to financial independence.

The Wisdom of Budgeting

Whether your kids work or not, they need to learn about spending wisely, and that requires some experience with a budget. Say your high school senior is heading off to college next fall, and you plan on giving her a fixed sum each month to cover everything but room and board.

Now, while she's still at home, is a good time to get her accustomed to living on a budget. You could give her a monthly allowance with the provision that she can only come to you for extraordinary expenses.

Help her create a budget that reflects her actual spending patterns and needs (and your financial realities, of course). It only takes a time or two of running out of money on the 15th of the month to drive home the wisdom of budgeting.

Credit Pros and Cons

When I was a teenager, no one my age had a credit card. In fact, few adults had them. Today, credit cards are ubiquitous; they've become indispensable financial tools. Not surprisingly, credit card debt has emerged as a real issue for college-age kids and young adults, and for many, it has become a substantial problem. When freshmen arrive on campus, they receive countless credit card offers, and kids who aren't prepared to use credit wisely often fall into a debt spiral at a painfully early age.

Your children may already have credit cards, but do they fully understand the pros and cons of using them? Do they realize the potential liabilities when compound interest works against them? Do they know the consequences to their credit rating (and their wallet) of late payments?

I believe that teens and college kids should have a credit card, which is useful in emergencies, offers some degree of consumer protection, and is essential for online purchases. But it should be viewed as a financial tool, not as an extra source of cash.

You can start them off with a credit card with a spending limit. Be sure to monitor their credit card statements to ensure that they're using the card responsibly. Teach them to pay off the balance every month before the finance charges start to mount up. These lessons are vital now, while your kids are still under your roof.

A Taxing Situation

Obviously, most high school and college kids are not going to pay substantial taxes, unless they have a great deal of investment income. Even if they have part-time jobs, the taxes are withheld automatically and the IRS paperwork is trivial.

But learning about this particular inevitability of life is an important aspect of financial maturity. If they do work, help them fill out their tax forms. You might even want to consider sharing your own tax return with them to help them understand the substantial burden that taxation poses, as well as the mechanics of dealing with the IRS.

Investing in the Future

My own children were "early adopters" when it came to investing -- must be something in our family's DNA -- and I believe that every child should learn to save and every teen should learn the basics of investing through hands-on experience.

Teaching children to save is best started when they are very young -- six or seven, say. We encouraged our kids to save part of their allowance and gifts; we wanted saving to be second nature to them. When they reached their teenage years, we opened small custodial accounts and taught them about investing -- the potential to make their money grow significantly over time and the basics of stocks, bonds, and mutual funds.

Now I often talk about the markets with my kids, and while their interest level waxes and wanes, they understand the basics of asset allocation and portfolio diversification. It's not just an issue of building wealth, either. I strongly believe that being involved in the markets engages people with the world. News takes on an added dimension when you've got something invested.

I may be overstating it, but I think investing helps teens become better, more informed citizens. And it certainly helps prepare them for another aspect of adult financial life.

The Value of Good Values

Practical lessons about money and personal finance are obviously important, but financial responsibility also means having good values. Whether you're conscious of it not, you set a financial example for your kids every day in the way that you earn your living, spend and invest your money, and contribute to society through charity.

I'm not saying you need to change your financial habits; I'm saying you need to be aware of what your children learn from your habits. Believe me, they notice!

Ultimately, money is a resource that can be used well or badly; its real value is that it gives people choices in their lives. I know I want my son and his siblings to use their financial resources well. By teaching them the basics of personal finance now, while they're still at home, I'm trying to give them a foundation for making their way into the world.

I hope it makes the transition away from home a little easier -- for all of us.