Image: Family © Big Cheese Photo, PictureQuest

Financial writer Beth Kobliner thought of a great holiday gift to give a friend's middle-school child: 10 crisp $10 bills. Except the child was baffled.

"He said, 'What am I supposed to do with this? I can't buy anything on iTunes with it,'" said Kobliner, the author of the best-selling "Get a Financial Life: Personal Finance in Your Twenties and Thirties."

Kids today "don't deal in cash much at all. They don't see the value."

Kobliner's anecdote indicates two things:

  • This kid clearly needs a lesson in gift-receiving etiquette.
  • The tools we use to teach kids about money need to reflect the 21st century.

We no longer live in a world where cash is king, lenders won't let you borrow more than you can afford and a high school diploma is enough to get a good job. In today's world, plastic pays far more often than cash, credit scores matter, and it's easy to overdose on debt. Saving for a rainy day isn't enough; people have to save for retirements that can stretch decades and figure out how to invest their savings without taking too much or too little risk. College educations have gone from a luxury for the elite to a virtual prerequisite for a middle-class life, even as the costs of post-secondary education have spiraled.

No wonder so many parents feel daunted about the task of teaching their kids what they need to know about money. They may not have a firm grasp on all the concepts necessary for financial literacy, let alone know what's important to tell their kids.

Fortunately, there's a new resource available: Money as You Grow, a series of 20 age-appropriate financial lessons developed by the President's Advisory Council on Financial Capability.

This is Kobliner's baby, a project that took more than a year to develop, using what she calls "the best available research, standards and guidelines." The website that presents these ideas includes activities to help parents teach each concept. For example, Milestone No. 5, "You need to make choices about how to spend your money," can be taught by discussing some of your small decisions with your 6- to 10-year-old child, such as why you pick one item over another at the grocery store.

Kobliner, a mother of three kids, ages 16, 13 and 8, wanted to create a resource that was simple and user-friendly enough to start the conversations parents need to have with their kids. The concepts can also be used by Scout groups, community organizations and businesses interested in teaching literacy. And there's a colorful poster on the Money as You Grow website that you can print out. Posting it somewhere the whole family can see will remind you to keep teaching the lessons and gauge whether your kids have learned the milestone concepts.

"My goal is for every American family to have it on their refrigerator," Kobliner said.

I like Money as You Grow for a number of reasons:

  • It communicates the most important concepts -- delayed gratification, opportunity cost, the difference between needs and wants, the value of compounding and starting early with saving -- in ways kids can understand.
  • It talks a lot about credit cards, explaining that a credit card is a type of loan and that carrying balances will cost you big time. Many financial-literacy tools developed by banks and other lenders don't emphasize the importance of avoiding credit card debt. What a surprise.
  • It gives concrete examples. For Milestone No. 11, "The sooner you save, the faster your money can grow," it suggests telling your child that if he sets aside $100 every year starting at age 14, he'd have about $23,000 at age 65. However, if he begins saving at age 35 he'd have only about $7,000 at age 65, assuming the account earned 5% every year.

"Behavioral economic studies show that if you give kids . . . concrete numbers, kids actually save more than if you talk in the abstract about savings," Kobliner said.

Money as You Grow isn't exhaustive, and it isn't meant to be. We've been teaching our daughter additional lessons as she's grown and hope to teach her more in the future (she's 9 now). Here are the concepts the Money as You Grow project says you should teach at various age brackets, along with some of my own suggestions.

Ages 3 to 5

  • You need money to buy things.
  • You earn money by working.
  • You may have to wait before you can buy something you want.
  • There's a difference between things you want and things you need.