In the age of enlightened parenting, “real world consequence” is our mantra, preparation for the adult world our mission. The earlier we discuss sex, the better. But, with issues of money, we’re suddenly throwbacks to an earlier generation. We shelter our kids then send them full-grown into the world, unschooled, to learn about money on the street.

Why not help our kids grapple with the complexity of money while the stakes are still low, just like we do with everything else? Money issues penetrate our value systems and impact almost every major decision of our adult lives — not to mention dominating much of our daily routines. Let our kids learn its lessons with Legos instead of a Lexus.

Introduce kids to money by giving them responsibility for earning some of their own. This way, they learn that life’s little luxuries require sacrifice. They feel the emptiness and waste of their own unrestrained spending. By trial and error, kids begin making value judgments and articulating their own financial priorities.

Plus, there’s no better playground for creativity and ingenuity than the real-world marketplace. “Thinking outside the box” naturally occurs in response to true motivation that contrived scenarios just can’t seem to replicate. eBay wasn’t dreamed up at summer camp.

Most importantly, kids get the chance to learn first-hand the importance of regular saving and the benefit of seeking worthwhile returns. Only by investing can they learn to ride out the discomfort of market fluctuations and begin to understand its long-term growth opportunities. While kids can certainly afford risk with their luxurious time horizon, starting out conservatively minimizes ups and downs. If they’re not scared off, they’ll stay in. And, that’s the point.
Kids willing to invest can actually create a nice little cushion over the very long term. If a 10-year-old saves $50 and increases her savings by $100 each year until age 18, her $4,050 total investment grows to $510,000 by age 65 at 10 percent. A more ambitious child investing twice this much would have a nest egg of $1 million. Sure, inflation will take its toll on these amounts, but, if kids get this far, they’ve likely saved and invested their entire lives.

The financial world has clued in with lower minimum mutual funds. The Pax World Balanced fund starts at $250; the Vanguard STAR fund begins at $1000. Older kids with regular jobs may consider automatic investment plans. The TIAA-CREF Equity Index and T. Rowe Price’s Spectrum Growth funds require only $50 to start with an automatic $50-a-month investment. Small stock purchases can be made directly from some companies through direct stock purchase plans. And, don’t forget about IRAs if fund minimums can be met.

So… the next time our kids approach us about an iPod, let’s consider saying, “Yes — if you raise part of the money yourself.”  If they truly want it, they will. All we’ve got to do is stand back, let them make their mistakes, and watch the real world of money teach its valuable lessons.