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The Best Back-to-School Money Lessons for Kids

Kimberly Palmer

Some students heading back to school this fall can expect to study a new subject this year: money. More high schools are requiring students to take personal-finance courses before graduation, including schools in Virginia, which implemented a new program last year. Tennessee, Missouri, and Utah are the only other states with such a requirement, according to the JumpStart Coalition for Personal Financial Literacy.

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Largely inspired by the financial crisis, more states have been adding optional personal-finance lessons, too. Wisconsin's governor's office recently distributed $250,000 in financial literacy grants to the state's school districts, and students in Washington, D.C., help run a credit-union branch at their school.

Research suggests those kinds of lessons are sorely needed: JumpStart's surveys have found that 12th graders get failing grades on basic personal-finance literacy tests. Adults don't fare much better; research shows that about 3 in 4 workers don't know how much money they need to save for a comfortable retirement. Only about half of respondents in one study were able to correctly answer two simple questions about interest rates and inflation.

That's one reason President Obama has launched his own financial literacy campaign aimed at young people. The campaign, designed with the help of financial journalist Beth Kobliner and other members of the president's Advisory Council on Financial Capability, highlights 20 money lessons for children, broken into five age groups. In addition to a printable poster, the campaign features an interactive website for parents and teachers.

Federal Reserve Chairman Ben Bernanke also emphasized the importance of financial literacy in a recent talk with teachers. He said he supports adding personal-finance requirements to school curriculum as well as incorporating money lessons into other subjects, which about two dozen states currently do. Since adults need to know how to navigate loans and complicated purchasing decisions, Bernanke said it would benefit the overall economy to impart those lessons to students.

There's a lot parents can do before sending their kids off to school this fall, as well. A recent survey by the National Foundation for Credit Counseling found that 44 percent of respondents said they learned the most about money from their parents. Here are five important money lessons that your children probably won't learn in the classroom:

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1. You can't buy everything you want.

Linda Descano, president and chief executive of Women & Co., suggests taking photos of not-quite-necessary back-to-school items your child wants instead of buying them. Then, if they still seem necessary a couple of weeks later, they can go in the shopping cart.

2. Skipping one purchase allows you to save for another.

Instead of buying items for children, money experts recommend giving them the cash and letting them decide how much to spend and how much to save. When shopping for back-to-school items, for example, Descano says older children in particular can use some of their allowance savings or earnings to pay for certain items.

Similarly, Susan Beacham, creator of the Money Savvy piggy bank, says she would often give her children money for soda on vacation and let them decide whether to buy the soda or save the money for later. They almost always decided to save it.

3. Keep your information private.

According to the Obama administration's financial literacy campaign, 11- to 13-year-olds are ready to learn the basics of identity security: Never answer emails from strangers, don't click on pop-up ads, and don't share Social Security numbers or other personal information online. Parents can explain these principles just as they explain how to avoid strangers in public places.

4. It's okay to make mistakes.

Lewis Mandell, a finance professor at the University of Washington who has studied financial literacy, says allowing children to experiment and make mistakes can provide more useful lessons than anything taught in school. He encouraged his now-grown daughter to invest as a teenager; she learned how to diversify after losing money in Pepsi stock.

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5. Avoid debt, and forget trying to 'keep up with the Joneses.'

Thanks to social networking sites such as Facebook, it's easier than ever to compare your own material wealth to those of peers, who might post photos of new $200 shoes or their vacation to St. Thomas. Talking about how to avoid those kinds of comparisons, and the debt that can easily follow any attempts to keep up, can help minimize impulse purchases.

Kids might be getting more money lessons in the classroom, but they still look to their parents for their primary financial education.

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