A child occasionally blowing a week's worth of allowance on ringtones or a month's worth on designer jeans may seem like a harmless rite of passage. If the child is really young, you might even think it's cute — and to be fair, such behavior may be both harmless and cute if parents use these kinds of moments as teaching opportunities.
But most parents aren't nearly vigilant enough with their financial guidance and most schools don't teach a thing about money at young ages. So bad habits develop early and may stay with kids for a lifetime. No one should be surprised to see these same children later on buying cars or houses they can't afford and amassing credit-card debt they can't pay off.
What young people don't know about money is sometimes shocking. In a recent national survey testing high school students about basic financial facts, only one in six understood that over the long run stocks should generate higher returns than savings bonds; only one in five understood that the interest paid on a savings account is taxable in most cases. The average score on this financial literacy test was an F — just 48%, which happens to be the worst result in a series of six such tests over the last 11 years.
Even when teachers were asked to test only their brightest students the average score barely budged — to a still-failing 57%. "Kids don't know enough about finance pretty much across the board," says Laura Levine, executive director of JumpStart Coalition, which promotes teen financial literacy. One big problem is that many parents aren't sure how to bring their kids along. Here's a snapshot of what your kids should know about money at four stages of life: