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This article is from a series of articles about giving your children the life-skills necessary to effectively manage their money. To go to the table of contents, click here.

Teaching the basics about money

The challenges facing today's parents are not the same as those their parents faced when they grew up. Financial choices that parents make are influenced by choices their parents or other adults made regarding money-positive or negative. Past influences offer no guarantee for future success, neither are they an excuse for failure. Set your children up for success by teaching them fiscal responsibility and by leading through example.

Money, Today and Tomorrow

One good way to get kids interested in spending and saving is to teach them something about the history of money. This will help them understand money not only as a medium of exchange, but also as a commodity that can be saved for future use.

Help Kids Understand Money and Its Value

Ask your kids what kinds of things they value and would use as money, such as trading cards, books, action figures or video games. Provide them with examples of items that other cultures used for currency. This will help them understand financial value, exchange, and what money represents.

In the past, people used things of practical value such as sea shells, cattle, bullets, beads (wampum), clusters of tobacco leaves, and small bits of metal to exchange things. As recently as the 1940s, during Germany's postwar economic collapse, chocolate bars and packs of cigarettes were used as money.

Money circulates continuously through our social and financial system. The employer pays wages to employees; they use the wages to pay the grocer and the auto mechanic, who use the money to pay their own suppliers and employees. Some of the money that changes hands will end up in financial institutions or stocks and bonds where it is used by businesses to buy more goods and services and to employ more people.

History of Money

Before there was money "Money" was what you grew or hunted. Everything from grains to game was traded, but it was hard to make change.

700 B.C. (Gold coins) Coins represented a great leap forward in portability and convenience.

1661 (First Modern paper money) During a coin shortage, Sweden became the first European country to issue printed paper money.

1700 (Checks and bank drafts) Checks let people move money readily, access it without carrying it, and make exact payments. Currency was no longer a prerequisite for payment.

1973 (Credit cards) Credit cards made purchasing even more convenient, as banks began communicating transaction information through computers.

1988 (ATMs) ATMs proliferated worldwide, providing consumers with convenient, secure access to money and account information.

1991 (Debit cards) Debit cards extended card functionality to the deposit account, making it much more convenient for consumers to shop and pay bills.

1996 (Chip cards) Chip cards, sometimes called "smart cards," offer the latest technology to support a variety of new uses beyond traditional payment methods.

2000 (Your phone) In some countries in Europe it is already quite common to pay for things by passing your phone over a reader and having the purchase amount deducted from your account.

Tomorrow (Who knows!) Who knows what tomorrow will bring? Bill Gates believes that someday you will not need to touch money any more since all payments will be made electronically.

Working, Earning, Teaching and Learning

How your family earns, spends, and saves money reveals a lot about your lives and what you value. Talk to your kids about what you do for a living, and explain how working provides shelter, food, clothing and other necessities for your family. Take them to the workplace to help them to understand exactly what you do on the job. This will show them the intimate connection between work and money.

In the past, the relationship among work, money and well-being was much easier for kids to see. The family grew food for meals and made many tools and toys by hand. Today's kids need more help in understanding the role of money in their daily lives. The most important lesson is that before money can be spent, it first must be earned.

To begin your family's money education, explain coins and bills. Kids can understand coins and bills when they are learning to count, at about the age of three. Family outings can provide opportunities to show them how money works. For example, kids can learn by watching you exchange bills and coins for food in a restaurant or supermarket.

Once they understand that money is used to buy things, it may be time to find out what your kids think about money. Ask them what they hear about money and our economy in school and on TV. Ask them how they feel about what they hear. This can help you learn how your family is absorbing information about money and consumerism.

Consider some practical ways to teach your kids about money. For example, you might take them to the supermarket and use discount coupons, particularly ones they've clipped themselves in advance. This involves kids in decision-making and shows them how to get good value for money - the basis of sound financial management. Remember, there are opportunities to teach kids about money and values every day.