Dear Mary Lou,

Peer pressure can make it very difficult to distinguish between what children want and what they need. Here are some things you can do to help them.

• Do the "Where Does the Money Go?" activity described above so that your child can see how much of your paycheck goes to everyday necessities and how little is left over for things we want, like entertainment or vacations.
• When your child asks for a popular brand of clothes that costs more than most other brands, try this: Ask your child to show you the prices of three or four different brands, including the brand that she wants you to buy. Discuss with her how much money you can comfortably agree to spend on the item, based on the range of prices she has given you, and suggest that she find a way to earn the money to make up the difference. In this way, she can choose to accept the brand you are willing to buy, or make a savings plan so she can have the item she wants.
• Discuss with your child a purchase you want to make for yourself, before you buy it, to demonstrate your own strategies for spending. It is important that your child sees you weigh alternatives, and has the opportunity to contribute to the process. You might say something like, "Help me out here: If I buy this pair of shoes now, I won't be able to buy that hat I've had my eye on." If your child doesn't catch on, use a prompt like "Do you think I could find these for less money at some other store?" In this way, you might demonstrate that by shopping around first you save several dollars -- dollars you should put aside so that your child can see them add up as this practice continues! In this way, when your child is faced with a purchase, you can refer back to your own decisions and how they worked out.
• Play the Cyberchase "Gollywood Squares" board game with your child. (Downloadable from pbskids.org/cyberchase.) This is a fun way to motivate your child to distinguish between "want" and "need" while providing opportunities for your child to practice making smart money decisions.
• Help you child be a savvy shopper. Point out some retailers' tricks, such as putting certain items in key places, like the ends of the aisle or by check-out counters so they can capitalize on impulse buying.
• Clip and save coupons from newspaper flyers -- especially coupons for items you regularly purchase. Every time you use a coupon, have your child help you keep track of the money you saved. You might keep a small notebook with the coupons so that you can both keep a running total of what you save over a month's time. Your child will be surprised at how quickly the savings add up!
• Finally, show your child how to save some money for purchasing something they want, but don't necessarily need. A little money saved over time can add up to a lot, and they will be able to use this valuable lesson even as an adult.

Dear Finn,

Credit is very difficult for kids to understand; in fact, it is difficult for most adults! The idea of "buy now and pay later" has been sold to us as a way of life. But we seldom discuss the responsibilities and consequences that go hand-in-hand with "buying on credit," and yet we should if our kids are to make smart financial decisions as adults.

Young children have not had enough exposure or experience with finances to grasp the concept of credit. But they can understand the concept of borrowing money to pay back later. They might forget their lunch money one day and borrow from a friend. They recognize how important it is to pay back the money they borrowed in good time -- especially if they have ever been a lender! Kids are not comfortable with an I.O.U. in their pocket -- no matter how reliable the borrower. Kids would much rather have the money!

You can explain to your child that there are companies, like banks and credit companies, that make money by lending money to people. For example, as adults, when we use credit cards, we are basically giving I.O.U.s to the credit card companies. This can be a useful convenience to people who pay their credit card bills on time: They don't have to carry a lot of cash, and they have a statement of their monthly expenses on the bill.

The problem with credit cards, however, is that they make it all too easy to spend more money than we have the ability to pay back when that monthly credit card bill arrives. And the interest penalties for that can be costly! Here is a simple scenario that your child may be able to follow: You use a credit card to buy something for $100. You can do this because you have an agreement with the credit card company that you will pay them back when you get your monthly statement. If you pay them back on time, it costs you nothing to borrow the money. But if you do not pay them back on time, they will charge you money. Your next statement will be not only for the $100 you originally borrowed, but for an additional $25 (or whatever amount the company charges you for the use of their money)! It is important to explain to your child that this is part of the agreement that you have with the company. They are lending the money to you, and if you do not pay it back on time, they will charge you.

There will always be times when borrowing money or using credit is the best course to follow. Let your child know that to do this sensibly, however, one should always understand what the fees for borrowing are going to be and work out a sensible plan for paying back the total amount!

Dear Jennifer,

It is important to help your child have an understanding of why you sometimes have to say no to something they want you to buy for them. But you don't have to tell them how much money you earn. And there are reasons for not doing this that you should consider.

What you tell your child may get repeated to others. If you tell your child how much you earn, it may not remain confidential. Kids get caught up with peer pressure and may feel tempted to share what they know about your earnings. You would be amazed what kids tell during "show and tell"! If you want your salary kept a secret, it is probably best not to tell your child what it is. Otherwise, you will have to communicate to your child the responsibility of keeping a secret in a way that they can understand.

The age of your child is important. Young children (6 and under) have little experience with numbers beyond one hundred, and anything more than 100 seems like a very large amount. If a parent says, "I make thirty-thousand dollars a year," the child may think that is an enormous sum of money, and then feel confused when the parent says, "I can't buy that for you now because we can't afford it."

Here is an activity that can help your child understand why you sometimes have to say "no." It is a good place to begin discussing your family finances without telling kids your actual salary.

Activity: Where Does the Money Go?
Take a piece of paper and write "$MY PAYCHECK$" on it. Ask your child to pretend that it is your monthly paycheck. You don't have to tell them how much you earn each month, just that this paper represents the total amount.

Then, on another piece of paper, ask your child to help you make a list of all the different things your family uses that money for. Help your child make categories for these expenses, such as food, rent (or mortgage payment), transportation, clothing, entertainment, medical, taxes, etc.. The categories might be more or less detailed, depending on your situation, but they should include the major expenses that you have each month.

Now you are going to show the portion of your paycheck that goes to pay for each of the expense categories. For this activity, rough estimates work just fine - we need to keep the ideas simple. For example, you might estimate that 30% goes to pay Rent, 10% goes to Transportation, 25% goes to Food, 15% to Medical, 10% to Taxes, and so on. Just make sure that your estimates add up to 100%! (Note that understanding percentages isn't important here because you are going to show them the proportional amounts of your paycheck in the next step.)

Go back to the "$MY PAYCHECK$" piece of paper you made earlier. Tell your child that you are going to cut it apart to demonstrate how the money you earn each month gets spent. Divide the paper into ten equal sections; each section represents 10% of the whole. Then, choosing one of your categories, cut off the appropriate number of sections to show how much of your paycheck is spent on that category.

Using the above numbers, for example, you would cut off three sections for rent (30%), and two-and-a-half sections for food (25%). This can be a dramatic moment to your child because with just two cuts, more than half your paycheck is gone! Continue cutting off sections, discussing what each section represents and giving your child a chance to see how much is left over for the remaining categories.

In this way, your child can begin to see that essentials like food and rent use up a substantial part your paycheck. They start to understand that your paycheck is not simply spending money for fun things to buy, and that a large part of it is committed to helping the family in ways that are not always apparent to the child.

Dear Jeanine,

Your son is not alone - first-graders are just learning how to add, let alone learning how to count money! But there are several fun activities you can try that should help him along.

Hidden Coins
This is an important beginner activity because kids of this age have difficulty understanding that coins have both a size and a value, and bigger doesn't necessarily mean the coin is worth more! A nickel, for example, is larger than a dime, and so kids tend to think it is worth more. Another misconception kids have is that two nickels are worth more than a dime because there are two coins as opposed to just the one smaller coin.

When your son isn't looking, put a few pennies, nickels, dimes and quarters on a table and cover them with a thin cloth that you cannot see through. Tell your son that you're going to play a game with him: He has to feel the coins through the cloth and tell from their size what they are. When he correctly identifies a coin, ask him to tell you what it is worth. In this way, he will identify coins by their size and associate the value of each coin with its size.

Sorting Coins
This activity will give your son valuable experience adding like coins, which is a first step in adding mixed coins and bills.

At the top of a big piece of paper, draw a large circle. Under this make four vertical columns. Label the columns: QUARTER - 25¢; DIME - 10¢; NICKEL - 5¢; and PENNY - 1¢.

Fill a bowl with coins. Have your son take a handful of coins and dump them in the circle area. Then ask him to sort all the coins into the appropriate columns. When the coins are sorted, help him add up the amounts for each column and write the totals at the bottom. Start with the pennies counting by ones, and then add up the nickels counting by fives and the dimes counting by tens. Adding the quarters will be harder until your child has enough experience to remember the 25¢-50¢-75¢-1 dollar sequence.

Help him use a calculator to add up these totals to get your grand total. Then return the coins to the bowl, mix them up and start again.

How Much?
Here's a fun activity to do while waiting to be served at a restaurant: Check your wallet to see how much loose change you have. Then, on a scrap of paper, write an amount of money less than the change you have (for example, 79¢). Using your coins, your son can try to show that amount. If you have the coins, challenge him to make the amount in different ways.

Flash Cards
You can make some simple flash cards to help your son recognize the different coins and tell you their values. You can download pictures of coins from the Web or copy and enlarge real coins on a copy machine. Another method is to use double-sided sticky tape and attach the actual coin to an index card. Make several cards for each kind of coin.

Here are some other activities to try:

Tell the Amount
Have your child look at one card at a time and tell you what coin it shows and what the coin is worth. If he answers correctly, give him the card. If not, move it to the back of the deck and keep going. The game is over when he holds all the cards.

Tell the Total
Show two or more cards at a time. Your son tells you the amount of each card and then gives you the total.

Groups of 25
Have your son make groups of coins in which each group has a total value of 25 cents. How many different groups can he make? For example, he could group 2 dimes and 1 nickel, or 4 nickels and 5 pennies. Once he has made several groups, help him count the groups out loud to get a grand total, saying 25 cents, 50 cents, 75 cents, 1 dollar, and so forth.