In this ever-changing world, the need for financial understanding is more important than ever.

When it comes to finances, children have always benefited from the development of a strong knowledge base. This development is even more critical today in our world of ever-changing technology, and media pressure to “add to the cart.”

Jolene Godfrey, in her book Raising Financially Fit Kids, does a wonderful job listing the "top ten basic money skills," defining these skills, and providing practical application of them depending on a child's level of development. These skills include:

1. How to save money;
2. How to get paid what you are worth;
3. How to spend wisely;
4. How to talk about money;
5. How to live within a budget;
6. How to invest;
7. How to exercise an entrepreneurial spirit;
8. How to handle credit;
9. How to use money to change the world; and
10. How to be a citizen of the world.

Godfrey breaks down the ages of financial development and understanding, similar to developmental psychologist Erik Erickson's stages of development in life. Erickson taught that human beings develop new skills—for good or for ill—at every age of life, beginning with learning trust when their needs are met as an infant (or mistrust when they aren’t). I have selected three financial development skills on which to focus: how to save, how to spend wisely and how to handle credit. Of these skills, the suggested applications will be for age groups 5-8, 9-12 and 13-15.

How to Save
The development of the saving skill for a seven-year-old might involve a piggy bank, a small allowance and an understanding of the word “savings.” When children grow into the next developmental level, they should be ready for a more complicated understanding of saving; applications can include saving for a specific purchase by setting money aside and adding to the fund until the purchase can be made. Finally, as children move into the ages of 13 to 15, special consideration must be given to the developmental goal of independence. Saving for a vehicle or attending a class trip are examples of this.

How to Spend Wisely
This skill came to mind at the grocery store recently when I saw several customers looking through a clearance bin, all the while commenting that they didn't need anything! I am fairly confident that most of us have fallen for purchasing something even if the item wasn’t needed—nor would have been considered—without the sale sticker.

Children in the early stages of development can be positively influenced by a conversation defining the difference between wants and needs. A practical application of this would include having your child carry a calculator while shopping with you, and subtracting the cost of each item from the total dollars the family has to spend. For children in the 9-12 age range, a practical application would be teaching price-comparison shopping. For parents of an older child, assigning the task of evaluating different cellphone plans could be a way to explore this skill.

How to Handle Credit
This skill is best learned early on. For younger children, that could mean helping them get a library card and understanding the meaning of words like “trust” and “borrow.” For slightly older kids, parents could agree to an advance in allowance, and the setup of a payment plan that includes due dates and interest. Parents of children in the 13-15 age range can help them set up a checking account and explain the difference between a debit card and a prepaid credit card. One might also explain a credit report and the impact it can have on individuals and families based on its current standing.

A solid understanding of finances has always been important. But in this ever-changing world—where pensions are becoming rarer, Social Security for future generations is not guaranteed and the pressure to buy is immense—the need for financial understanding is more important than ever. Providing children with an understanding of financial skills and giving them age-appropriate experiences to try out their newly-learned skills gives them the power to provide for themselves, plan for the future and survive in a consumerist society. iBi

Maggie Classen, LCSW is a therapist with The Antioch Group, serving children, adolescents and families.