A recent study by the Organization for Economic Cooperation & Development states that just 12% of school-age children scored at the highest level of financial literacy and that 22% "score below the baseline level of proficiency." How can parents boost their kids' money IQ? By starting early - and being creative. Get that process going with these five tips:
The "skin in the game" talk - The best way to teach a teen about the stock market is to have some "skin in the game," says Evan Tarver, investments analyst at FitSmallBusiness.com, in New York City. "This means that the teen should be using real money that he or she can gain or lose," Tarver says. "The only way to keep an active interest in an investment is to have a vested interest. Making a play portfolio on Yahoo Finance might teach you a little bit, but tips, tricks, and insights stick much more when you're seen your actual money fluctuate."
Bring charity into the conversation - "We recommend clients set-aside a portion of their charitable giving and allow their teens to select the charitable organization," says Ben Westerman, senior vice president at HM Capital Management, LLC, in Clayton, Mo. For example, a parent may provide each child with a set dollar amount -- less when children are younger and more as they get older -- with the assignment of researching a charitable organization and creating a presentation on their findings, Westerman explains. "You'll be amazed at the amount of time and energy teens will put into this project," he says. "It's a great way for teens to start thinking about others and the good work many charities do in your community."
Take the "KISS" approach - "I recently returned to the high school I graduated from to talk to the students about investing, and I'll admit my presentation was more complicated than it should have been," says Paul Ruedi, a financial advisor at Ruedi Wealth Management in Champaign, Ill. Consequently, Ruedi's advice is not to go into the minute details of investing, but keep the talk simple. "Teaching teens about what a stock even is would be a good starting point, but I think the slide the students learned the most from was one that showed the growth of the S&P 500 over multiple decades," he says. "This led to a great discussion about compound interest and the importance of investing early which are extremely valuable lessons for teenagers."
Keep it positive - Talking to your teens about money is a chance to set an impression that can last a lifetime. "If you focus on risks and negatives, they're apt to turn off," says John Reitnouer, senior vice president and portfolio manager with D.A. Davidson in Los Angeles. "If you highlight the benefits, they just might respond." Reitnouer advises telling stories, and avoiding any lectures. "Don't push," he advises. "Teenager timing is different than adult timing. You know you're getting through when they ask a question later, sometimes out of the blue. That's the time to keep the conversation going."
Take advantage of "alone time" - Time in the car is great for conversation, Reitnouer says. Use that time, and dinner conversation, to speak about investing. "One family I know made sure they had dinner together at least once a week, and required each child to have read the paper and come prepared with something to talk about when the family was together, and that included investing," he says. "Try to turn the dinner conversation into an occasional teaching moment." Years later, the client reported that being forced to have an informed opinion made a great deal of difference in her life and the lives of other family members. "She is an investor to this day," he says.