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Photo: N/A, License: N/A, Created: 2009:08:12 08:43:36

Financial literacy explains how people understand the function of money: how it’s earned, managed and invested. Understanding money is important when children go to college and venture out into the workforce. Knowing how to manage their earnings will help them grow both personally and professionally.

According to a story in the Wall Street Journal, “The U.S. is the world’s wealthiest country — but it’s not because Americans are the best with their finances. In fact, a sprawling global survey of financial literacy around the world finds that the U.S. ranks 14th, behind Singapore and the Czech Republic. While overall Americans rank 14th, the generation of Americans age 15 to 34 ranks 21st.”

This deficit affects our economy, and our children’s future employment, so it is an important issue for parents to consider when they are raising their children.

A big problem is that many young people do not have good role models or any real way to learn about finance, said Louis Ingargiola, president of Ingargiola Wealth Management in Dunmore. “Most adults don’t have good money habits, so how can we expect our kids to (have them),” he said.

Parents are their childrens’ first teachers, and by incorporating play into real life, they can help children see how money works for them. A 2-year- old can set up shop on the porch. His pretend grocery store inventory can feature plastic fruit, cereal boxes and canned goods. Using play money in exchange for goods helps him understand the basics of commerce.

Older children can help clip coupons and go to the store with their parents on shopping day. They can find the items featured on cents-off coupons.

An allowance requires a savings account with regular deposits and an explanation from mom and dad on how compound interest will make their money grow. Money gifts can be saved and earmarked for an especially desired investment like a new computer or a vacation, or looking ahead to college expenses or a car.

Ingargiola said his children — ages 15, 12, and 10 — were taught that they should save some, if not all, of their birthday and Christmas money and save up the rest for something they really want.

He’s also a proponent of schools teaching kids about the value of money and said that financial literacy should be part of the curriculum beginning in middle school. “Subjects that can be taught are accounting, consumer education, finance and real estate,” he explained.

Another aspect of understanding money is discipline. Delayed gratification, an ability to resist temptation for an immediate reward and wait for a later and better award, has been shown to be a factor for later success. “Since I have children 15, 12, and 10 years old, I try to teach them delayed gratification, that they can’t just get what they want whenever they want it.

“I also believe that once they are old enough to work, they should get a job, so then they really get a good understanding of how long they have to work to buy something they want,” Ingargiola said. “Then they might realize they do not need or want that item as much as they thought they did.”

For more information on helping your child become financially literate,

visit consumerfinance.gov/money-as-you-grow.