Mutual funds can be fun for kids to learn about because it’s sort of like watching team sports. Stay with me here, I promise this analogy will work. An individual stock is like an athlete in a non team sport—a golfer or tennis champ. You watch them to see how they compete, how they stack up, how much they win. A mutual fund is a group of people, a team that competes with other teams to see who makes the most money.

Make sure to have kids learn the buying stocks lesson and the municipal bond fund lesson (links here) before moving to this general mutual funds lesson.

Here’s a three-step lesson:

1. The definition of a mutual fund: It’s literally a collective investment scheme where a licensed investment manager pools money from different people to invest in a combination of stocks, bonds, and money market instruments. The manager trades the pooled investments on an ongoing basis.

Major brokerage houses, like Smith Barney, build their reputation on their ability to select combinations of stocks, bonds, and money market vehicles to produce the best return on investment.

Mutual funds come in many different flavors. There can be high tech mutual funds, for example, where are all the companies included are high tech companies. They can get even more granular than that. There are telecommunications-specific mutual funds.

Mutual funds have their own tickers, and anyone can look at the companies included in the mutual fund.

2. Google three different types of company stock based mutual funds: global investments, high tech, and social responsible investing.

Have your teen look at what company stock is being bought for mutual funds in these categories.
The reason I chose these three categories is that they tend to interest teens. Yes, even the global one because it gives them a world view. Many want to travel, and for them to understand what investing in companies around the world is like gets them in touch with that feeling.

3. Choose two mutual funds in one of the three categories and track performance for three months. By clicking on the ticker of the mutual fund, you’ll prompt a list of companies in the fund. Kids can see how the fund manager is selling. Tell your kids to watch Bloomberg TV or CNBC —or read the business news online— and then look at their mutual fund values change.

The most important aspect of understanding mutual fund investing is realizing that a fund manager is buying and selling stocks in the mutual fund daily, even hourly, depending on the news. The fund manager is like a coach of a team, pulling players in and out to create the winning strategy.

Have your kids see which coach ends up with a winning formula. Have them write down any patterns they notice in the buying and selling. For example, are certain stocks bought and sold more heavily than others?

Please share stories about your kids experience with this lesson. They come up with such great stuff, like deciding which stocks are “anchor” stocks, the equivalent of a superstar team player.

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Every time I explain to my students about Treasury securities—T-Bills, Treasury Notes, and Treasury Bonds— it leads to a pretty fired up discussion about the Federal Reserve and who really has the keys to the vault of our banking system.

If you want to understand how our country runs its own figurative checking account, and in turn who really pulls the purse strings, it is really important to understand the Federal Reserve System. Yet many adults don’t even understand the Fed, the reason being is that who is in control really isn’t black and white, and the whole system is a conflict of interest.

But if you teach the Federal Reserve system by approaching it from a purely macroeconomic perspective, kids don’t get it as deeply. I’ve tried many times. If your approach is to teach them how to buy Treasury securities, then they’ll have stake in the idea, which leads to macro understanding.

I subscribe to this teaching philosophy for everything economic. Make every lesson flow in and out of their pockets.

So, first, here’s the 2-part,quick lesson about what Treasury securities are. Do make sure to teach them this one after the municipal bond lesson.

1. Define Treasury securities: Any Treasury security is an I.O.U. the U.S. Department of the Treasury gives to the Federal Reserve Bank in exchange for money. (Some argue they scribble out these I.O.U.s too often, and spend a little freely with the loans.)

These investments, which for our discussion include three of the main types—T-Bills, Treasury Notes, and Treasury Bonds—are considered risk-free because the government could never possibly run out of money, so there would never be a default on their loan to you, the buyer. The logic is that even if the government went broke, it could raise taxes to pay off its bonds when the maturity dates arrive. Hmm. So does that mean you, as a taxpayer, would end up paying off the government’s debt to you?

There is an ominous example in history of a major nation defaulting on its bonds. Russia, in 1998, defaulted on its consumer debt (which is what bonds are). IT was called the Ruble Crisis and it was only 11 years ago. In this economy, it would not be unreasonable to worry about it. Yet, treasuries are considered failsafe, and as such the demand for them rises every time the stock market drops.

2. The difference between a Treasury Bill (nicknamed the T-Bill), Treasury Note, and Treasury Bond: The length of time the loan is made to the government. T-bills mature in one year or less, sometimes in as little as 30 days. Reminds me of an American Express card for the government. They’re borrowing money, but they’ve only 30 days to repay it, plus interest. Interest is only given at the maturity date. No coupons, which is why they’re also sometimes called no-coupon-bonds. Treasury Notes mature in 2 to 10 years, and Treasury Bonds in 20 to 30 years.

They are all purchased the same way you purchase municipal bonds, through a financial advisor at your local credit union/bank, or through a stock brokerage house.

Okay, once they have that under their belt, give them the following zinger about the Federal Reserve. Try it, you’ll be amazed how up in arms your teen will get. Explain how the Federal Reserve System is designed, and then ask them to think about whether it’s a conflict of interest. It may be the best essay question you ever get to ask them. And please send in stories about the discussions you’ve had with your kids about the Fed. I honestly would start any economics class with this lesson.

The Federal Reserve: What is this central banking system that lets the U.S. government borrow money from taxpayers any time it wants, without discretion? And who really runs it?

The Federal Reserve is comprised of 12 regional banks. These regional banks are technically owned by their member banks, yet the Fed is often considered an independent government institution with some private parts. The reasons are:

1. It does not operate to make a profit (which is a good thing, seeing how it lends to the government without any limits).

2. The Fed Chairman is appointed by the President of the United States, and serves as the executive officer of the Board of Governors, which is part of the Fed and also a so-called independent government agency. (Who in the room can name who he is right now, without Googling?)

3. It has three major functions, which are absolutely government administrative functions: The Fed sets monetary policy; the Fed supervises and regulates banks so that consumer rights are protected; and the Fed provides financial services and payment systems for the entire banking system, the government, and foreign official institutions.

So wait: how can it be part of the government and also lend the government money constantly by selling its debt to us? Isn’t that a conflict of interest?

And away you go…There is no clearer understanding of how corporate America and the U.S. government are bound. I believe, perhaps more than anything, that kids should be encouraged to find the conflict of interest unsettling, and to write their congressmen for explanation about why the Fed chairman is chosen by the same person who needs the I.O.U.s.

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I will soon do a post on teaching teens about mutual funds in general, but I firmly believe in teaching investment vehicles in a certain order. I know it sounds strange to talk about a specific example of a mutual fund before you give a general definition, but in this case—where teens are the audience—the information should be cumulative.

So the order should be, first teach stocks, then municipal bonds, then municipal bond funds. Then expand out to general mutual funds, where all the lessons they have learned so far will gel, because mutual funds contain both stocks and bonds.

Stay with the local angle to teach about bond funds and make the primer lesson about municipal bond funds. They really will maintain better interest. Also, municipal bond funds are on the safer side, and better to teach safest first.

So here are the 3 steps:

1. First, a definition: A municipal bond fund is a type of mutual fund. Essentially, it’s a collection of municipal bonds that an investment specialist manages. More than one person buys into a bond fund. So the investment specialist pools money from different people, then buys and sells bonds, depending on their value, keeping a set arsenal of them at all times.

Municipal bond funds tend to have lower returns (less interest to be earned), but are also lower risk and come with tax advantages. Lower risk means the bonds are issued by localities that are established, with low debt and a good track record, and often pay dividends. (In a more advanced investing post, I will go into choosing stocks and bonds on the basis of good dividends, because it’s a barometer of a stable company or municipality.) For the risk averse, municipal bond funds are a good diversified investment.

2. Have your teen go to municipalbonds.com and choose two municipal bond funds to track. Make them both local. Have them chart differences of return on investment over the past 10 years. See if they can find out why one is performing better than the other.

3. Then have them search on best performing funds in the state and compare it to another state municipal bond fund. Have them choose a state they dream of going to college in, or just like for some reason.

My favorite thing about teaching municipal bond funds is that kids get a very broad education about how their local and state governments manage money. It may spark interest in local politics and news. Kids tend to be loyal, so the comparison to another state will pique their interest. They’ll want their state to be better.

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When it comes to investing in bonds, I like teaching kids by going straight to municipal bonds. It’s like the way elementary school teachers teach kids social studies: They start in Kindergarten with the immediate community—here’s the school, the fire department, the grocery store, the police station, the post office. Then they expand out to differentiating between rural versus urban, then states, then countries. They do this for a reason, which is that kids retain information that they can relate to. Your teen or college student is the developmental equivalent of an elementary financial student.

As a college professor, when I want to explain how the economy works, I make my students write an article about the financial health of the university. Because it’s a state school, it’s a microcosm, and they learn so much faster than if I try to explain concepts in a large sense.

Bonds are very similar. Once they grasp the definition, they’ll like the local advantages of a municipal bond, plus they may even learn a thing or two about why the local government needs to borrow money, and what it’s being used for. They’ll love the fact that they are the creditor in the situation.

Learning about municipal bonds is a good follow up investment lesson to the stock primer, because like stocks, municipal bonds are also securities.

Here’s the step by step primer on bonds for teens:

1. Give them a gerneral definition that spells out the difference between a stock and a bond: Any bond is essentially an I.O.U. It’s a formal contract between the issuer/borrower (for municipal bonds the city or state government is the borrower) and the bond holder (you, the bond purchaser/lender), to repay the borrowed money with interest at fixed intervals.

While both stocks and bonds are equities, the main difference is a stockholder has a stake in a company (one of the owners), whereas a bondholder is a creditor who has lent a government money and expects to be paid back with interest. The interest is called a coupon—which comes from the old days, when actual paper was issued for a bond, and coupons were attached. On coupon dates, the bond holder would bring the coupon to the bank and trade it in for the interest payment.

Bonds have a long maturity cycle, up to 30 years, another difference from stocks. (Really short-term bonds, usually a year, are called Treasury Bills, or T Bills for short, and mid-range bonds are called Notes. I’ll do a separate blog on those.) Learning a long term investment vehicle, right after learning about stocks, which can be bought and sold every nanosecond, can help teens understand the spectrum of choices, and why you want both in a portfolio.

Municipal bond interest is exempt from Federal taxes, and in some cases from state taxes. You need to live in the state where the bond issuer is in order to get a state level tax break.

2. Have them choose four municipal bonds to compare for performance, each from a different state. Make at least one of them local. But also make at least one of them from another state. Have them make a chart. They can go to muncipalbonds.com, where there’s a state by state search to choose bonds.

3. Point out the tax benefits of the local municipal bond fund.

4. Have them research what each municipal issuer is using the bond money for. See if they can even find out! They’ll get nice and worked up about it if they can’t. It’s essential that they understand governments issue bonds in order to raise money for projects that should benefit the community. Buying your own state’s municipal bonds is the act locally part of the groovy world view. You’re investing in the upkeep of where you live.

By comparing different municipalities and their performance, kids will understand that not all local governments are run equally, and they vary greatly in wealth.

5. Tell them how municipal bonds are bought—either through an onsite investment advisor at your bank or credit union, or through a brokerage house. If possible, bring your teen to visit the investment advisor at your local financial institution, and have them analyze the four municipal bonds your kid has chosen to compare.

Make sure your kid asks the investment advisor what the dangers of bonds are. It’s always interesting to hear the answer. Essentially, bonds are safe, but nowadays people worry about municipalities in certain states going bankrupt. Still, they are safe, which is why there’s an inverse relationship between bonds and the stock market: When the stock market goes down, the average price for a bond rises, indicating greater demand for them.

6. Bonds can be an expensive buy in, but if you have a 529 college fund set up for your teen, you can make an investment in a municipal bond within that account. It will make your kid much more interested in that account, and what it means.

Please share your thoughts about buying bonds, and which bonds are your favorites.

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The inspiration for this post was a college student who became my intern. I asked her to find the ticker symbol for a company we were researching. She had no idea what I meant, and was too embarrassed to ask. With Google giving her the world at her fingertips, I didn’t understand why she didn’t just go find out, save herself the embarrassment. I was curious about the psychology of the problem, so I let it stew for a while. I definitely thought she was right to be embarrassed. She’s 20 years old. She’s heard the term by accident on TV a million times.

I finally confronted her and she said: “You can’t just Google something financial, can you?”

She’s a bright girl. It may not seem like it, but she is. Hey, at least she knew it was something financial. So, then I understood. The stock market, which, let’s face it, is a group hallucination in many respects, is intimidating to most young people. Once I demystified it for her, and then sent her to this great Virtual Stock Exchange web site to play, she transformed. Now she’s a day trader gamer—which was so not the point of my lesson. But we’ll get her there. She’s comfortable with it now, and is starting to really learn how to invest.

The following tutorial for your teens about what stocks are, how to buy them, and when not to buy them, is taken from my intern’s journey. It’s simple, 5 steps. There is a more advanced lesson I will write in another blog post, but this is specifically a primer for teens, or 20-year old newbies, with three goals: Teaching them what stock is, how to buy it, and who they are as budding investors.

The reason I emphasize teaching teens, and not waiting until they’re college students, is my intern said she would have understood her political science class so much more if she had understood the stock market beforehand. I think I’d like that quote etched in my tombstone! My raison d’etre, achieved.

But it is with a huge warning label that I write this post. I do not believe that every human being is designed to invest in the stock market. This primer is designed to ferret that out. My husband, for example, is not. I tend to make long-term investments, and think of stocks in seven-year cycles, sort of like real estate. He says he understands this concept, but if he’s aware of an equity that’s been purchased, he watches its ticker price every day, and is not emotionally stable about it. He sits, yelling from the sofa, as he obsessively watches Bloomberg TV. It’s not pretty, never mind healthy. The cat always darts out of the room if she hears Bloomberg come on.

Getting a feel for their investment nervous system, and what sorts of investments kids are comfortable making is such a gift of a lesson. If they have self-awareness about their investment disposition early, it will make them proactive about investing, wise about their tolerance for risk, and curious enough to educate themselves along the way.

1. First the definition: What is a stock? Take your time here, and don’t go too broad or detailed in explanation. A stock is a percentage of ownership in a public company. Each share of stock is a share in the company, like a citizen is a voter in a population. Every company with shareholders has an obligation to maximize the stock share’s worth. Shares of stock are traded every minute of every day, and people decide how much they want to pay for the shares based on good or bad news about the company. So the value of a share is never the same, even for a second.

They love this concept—why do they always love the idea of fast-moving, merit-based worth unless they’re arguing with me about the grade I gave them? Well, they love it until they realize how many shares there are to be divvied up, and that a precious few folks always own the majority. Their hearts sink when they realize that the majority shareholders are the only ones who influence the price of the stock, when they buy and sell in large chunks. (Don’t go into common versus preferred stock unless you’ve got a little economist on your hands. Save it for the more advanced lesson.)

Take the background of the stock definition just one step further: Big brokerage firms pool money together from big time stockholders, so when they buy a stock, they’re buying significant shares, and they affect the price of a stock tremendously. Suddenly they’ll know, on a base level, what ETrade and Smith Barney do.

There is so much more to explain, but just let that sink in for a while. It’s enormous on its own. Funny thing with stock lessons: Every little thing mushrooms into a macroeconomic view. So my whole approach to the stock primer for teens is to teach them a little at a time. Otherwise they get overwhelmed.

When you explain just the above, teens often resent stocks because they see the monolithic reason that corporations are “heartless.” They are indeed driven by a profit motive. But they also have a chance to see it’s not as evil as they think because corporate logic isn’t immoral, it’s amoral. If they grasp this, they’ll understand the world a little better. This was the key point that prompted my intern student to say it made her understand her political science class better.

2. Quickly segue to socially conscious companies and have them track three. Have them Google socially responsible investing. Individual company lists and mutual funds will pop up. I know this sounds tangential, but for teens and college students this is an essential second step in a stock primer. Otherwise, they’re going to go off on self-righteous diatribes about evil corporate America. You’ll lose them.

So, here’s my little trick. I tell them that socially conscious companies are ones that are green and humanitarian. For their lesson, they can invest in those. Green tech companies are a big favorite among teens. And they’re smart to like them. You may find yourself interested in buying in.

Teens love tracking the performance of the companies they believe in. But then comes the anthropological observation, which fascinates me in every class I’ve ever taught: I watch which kids stay devoted to socially conscious companies, and which kids stray, comparing dividends and return on investment to other conglomerates, and then go with the most profitable.

There are so many personality traits that shine through the stock lesson. Tell your kids that and let them see their true economic colors come out.

Regardless of which personality type they are, socially responsible investing will get their attention. (I will do a separate blog on just socially responsible investing, and how to really scrutinize the companies for true conscientiousness and profitability.)

3. Once you have their attention, tell them how people buy stocks. You can either call your financial institution and speak to an investment advisor there, or open a brokerage account at a place like ETrade or Smith Barney. Explain to the kids that the reason some people like brokerages is there are instances where brokerage houses get better prices because they’re trading such large chunks of shares, so when they’re buying you a stock, they’re probably buying thousands of other shares, affecting the price. They also can be first in to buy at the best price.

Now, if you’re a long term investor, the fractional difference in purchase price might not make a difference, and most brokerage houses charge a quarterly or annual fee for buying stocks. Most financial institutions have experts in house who can sit down with your teen and give advice, based on their questions.

4. Take them to your financial institution or brokerage, and have them talk to someone about buying stocks. If you don’t have a broker, call your credit union, because most of them have an investment office on staff. This appointment will be so interesting. Tell your teen to come in with questions about the three companies they’ve learned something about. Have the financial advisor explain purchasing a stock, why you need signatures and permission, fees associated, how performance is tracked, dividends paid out.

Have the goal of the meeting preset with the financial advisor. You want your teen to come out of there with three stocks to buy. Will they be the same ones the teen has tracked, or not? (You’ll see if they’re emotionally loyal, or reactive to compelling data. The advisor will recommend stocks they think are based in the area your teen has chosen). But don’t buy them yet.

5. Have them go to Virtual Stock Exchange and play the market, starting with those three stocks. See if they end up really wanting to buy them. Ask them to write down questions about the stock market each week for a month. If they stay with this game, buy them a share of stock at the end, based on their evaluation. If they don’t want you to buy stock, offer them a risk-free investment reward, like a CD, if you can. Don’t push buying the stocks.

Please share stock buying stories here. What sorts of companies are your kids interested in? Which kids ended up wanting nothing to do with the stock market and what did they have to say?

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It’s not too soon to teach your kid to plan financially, and invest in the world. In fact, if you wait until they learn it in school, or from some cold-calling financial planner, it will too late for them to have a confident relationship with making money from money.

I bought my first share of stock at age 13, compliments of my father. I tracked it for years. Never mind the economics classes I took. I learned how the stock market works because of my shares in Kaiser Cement. And I’ll get to the teen lesson about buying equities (individual stocks). But not first.

I’m going to start with how to buy Certificates of Deposit (CDs), or, as credit unions call them, Shared Certificates, for a couple of reasons. One, explaining what CDs are and how to buy them gives a primer on how financial institutions think and operate. Two, despite popular opinion, I do not believe everyone is cut out for buying stocks. I will address that in the Buying Stocks post. CDs, on the other hand, are a great starter investment for anyone.

And there’s never been a better time, because in this economy, they’re safe and sound. And now you can buy in for as little as $5. Check out this credit union offering a $5 Shared Certificate, designed especially for students. Financial institutions want Generation Y investors.

How to teach your teen to buy a CD:
1. First, give them a definition. A CD, or Shared Certificate, is a fixed-income investment issued by banks and credit unions, and is insured up to $100,000 ($250,000 on retirement accounts). Here’s what fixed income means and how it works: You give the financial institution a fixed amount of money for a set period of time—6 months, 1 year, 2 years etc. You may not use the money during this time.

In return, when that time is up, the financial institution gives you back the principal (your initial investment), plus a fixed amount of interest that is set at the time you buy in. That interest rate is going to be higher than a checking, savings, or money market account, which is why people like CDs. You make money on your money by tying it up. And that’s the key concept: If you withdraw your money before the set time is up, you get penalized by losing interest and in some cases, some of your original investment.

2. How to buy one: The simplest way is to go into the financial institution where you do your banking and ask them to sell you one. But, teach your teen to comparison shop. They can go online and Google CD rates, and see who has the best offer. Also, because their initial investment may be seriously limited, so may the offers.

Also have them look at potential types of CD—some have flexible withdrawal periods, some allow you to get the benefit of a better interest rate even if you’re in the middle of your locked in time period. But there aren’t a lot of options at low buy in rates. Still, no harm in asking. Have your kids write down questions to ask the financial institution once they find a good rate.

Comparison shopping is a key lesson here because they’ll learn an overarching investment principle: The more money you invest, the better deal you get. Period. People who dump $5,000 into a CD will get a better interest rate than someone investing $50.

3. Call the financial institution. Once they’ve chosen the deal that suits their needs, they simply call the financial institution, fill out the paperwork, and pay for it. (They may be bummed that they don’t receive an actual certificate in the mail, only a bank statement. I know I still am.)

4. Make sure to be clear about what happens for early withdrawal: Each financial institution is different. Some levy interest penalties, but some cut into your principal as well. Tell your kid to get the facts before they sign anything. For instance, don’t let them tie up money for 2 years instead of 1 because they didn’t realize if they changed their mind they’d have to pay for it.

5. Make sure they write down the CD maturity date and then call the financial institution to cash out before that date. Most CDs roll over (are reinvested) automatically if you don’t actively cash out. Legally, the financial institution has to notify you 30 days prior to a CD maturing, but don’t let them rely on that. Who wants to get embroiled in the paperwork of arguing who was right. You’ll win if they forget to notify you, but no one needs that headache. And they’re only required to send something out in regular mail, so all they have to do is prove they mailed it, not prove you got it.

This is a great lesson for kids in personal responsibility. Don’t stand on ceremony and blame others if things go wrong. Take the reins and make sure nothing goes wrong.

It’s like that old driver’s ed saying: Most accidents can be avoided with alert, defensive driving. Same is true for money.

What age do you think is appropriate to buy CDs? Please share your thoughts.

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No contest, the worst nightmare of a class I ever took in college was accounting. I’ve never felt less competent in my life. No matter what I did, I couldn’t muster the confident state of mind needed to assimilate information and find my own style with the work. Looking at a ledger made me freeze.

Now I try to remember that on days when I don’t have much patience or sympathy for my students. There are simply concepts that can be difficult to grasp at certain ages. I look at a ledger today and I don’t see what my problem was. I even think in terms of revenue and expenses when I try to assess any monetary situation. When I’m stuck, the accounting process helps me to be decisive. That’s the great thing about accounting; a simple majority always rules.

And therein lies the whole point of teaching your teens and college kids to go beyond just setting up a budget (see Budget post) and keep an actual ledger, before they ever take an accounting class, or instead of one. Later in their lives it will really sink in. With some kids, it will sink it immediately, so even better. If kids can apply the ledger concept right away, they will be supremely organized little monetary beings. My brother was one of those.

First things first in the ledger lesson: Tell the kids about the real-life applications of keeping a ledger, which they’ll experience immediately: 1) They’ll be able to maximize profits from whatever summer job they have right now (or even just allowance). 2.) They’ll be primed to create a balance sheet next, which records assets and liabilities. A balance sheet, which I’ll cover in another post, is the chart they’ll need when they’re ready to buy investments— such as CDs, stocks, mutual funds, bonds— and understand how they fit in to their financial profile. I will be covering investments in the next few blogs. 3) Last and most compelling: They’ll have a new way at looking at decision making, which, among other things, will make them very compelling coercers.

If I had ever understood accounting when I took the class, I would have used it to manipulate my parents . Think how much more compelling your teen’s argument will be to spend money on a big ticket item if they can demonstrate the rationale on a ledger. Tell them that!

Now, the steps to creating a ledger, which is all about getting granular with your budget, looking at it as one picture, seeing how the revenue and expenses are related. With a budget, and even line item tracking for their checking account debit cards, they see expenses as they scroll by. They create lump sums in categories. They know when they’re broke. But with a ledger, the details come to life, and there may be creative ways around certain details.

For instance, in a budget you simply have a lump sum for tuition. In a ledger, you’d detail the different aspects of tuition, if there any. Cost of class, cost of textbooks, cost of any student fees. When you get granular, you may find ways around certain costs. Even if you’re not running in the red. The goal may be simply to reduce expense. If the total textbook costs kept jumping out at me—and they would because they’re exorbitant—I’d get annoyed and start actively looking into used textbooks, which is a growing market.

This lesson assumes they have a checking account with a debit card, and a general budget they’ve created.

1. Get them an official, standard accounting ledger form online, one which you can edit. Don’t make one up. Use a real one, with a revenue/expense paradigm. The form can be a simple generic practice one, or your QuickBooks, or one our financial institution offers.

2. Have them go through their budget, with a computer screen open to their debit account, so they can see their expenses in line item form. They need to make line items, on the ledger, for each category. For instance, it’s not enough for them to put a dollar amount on weekly entertainment expense. They need to itemize it—movies, junk food, concert, etc. How they spent every cent. That’s why the online debit card tracking screen is so important. It’s too laborious otherwise. Then put all of this into the ledger.

3. Have them balance their ledger each day, in the evening, for one month. I know that sounds like a lot, and the debit card tracking does enter it online, so they could just grab the data once a week. But daily is a great way to form a habit. Tell them to time themselves, and just spend 5 to 10 minutes on it. Out of all the lessons, this one is perhaps most important. If you keep a quick eye on your money each day, it will never overwhelm you. Up the ante by being Pavlovian about it. Give them something they like while doing it—a favorite soda, candy. Does that sound terrible? Probably. But I’ll tell you, I eat chocolate covered espresso beans, my weakness, whenever I have to do my books. It helps. Quality of life, I always say. (My husband always suggests a cold beer, which is why he’s not allowed near the money.)

4. At the end of each week, sit down with them and ask what they think about how the week went. Don’t lead the witness too much. Just ask what they think about it, if they would change anything. My guess is that they’ll want more revenue. Just nod at first. Don’t start to make suggestions. Let them want it really badly first. Wait the whole month before making life change suggestions. My guess is by the end of the month they’ll be making the suggestions, and that’s when the whole lesson pays off. That’s the true goal.

5. At the end of the month, change one thing on each side of the ledger for the next month. Cut an expense, and mow an extra lawn for the revenue side. Use their suggestions, otherwise offer them. It’s fascinating for them to see how just one life change can make a difference.
It’s a great life metaphor too. You don’t have to be overwhelmed in order to make changes in your life. In fact, it’s often most realistic and lasting to change little things, one at a time.

Please write in about experiences teaching accounting, and if you have questions along the way, ask them here. I finally do know how to conquer a ledger!

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I had a very good friend visit from overseas last year. She was here on an extended stay, almost a year—not at my house, thank goodness, because there’s a sure fire way to damage a great friendship. Her husband is an oncologist connected to the government, and he was doing a rotation here. Part of the deal was that she wasn’t allowed to work in the States. Other countries become concerned that they’ll foot the bill to send their talent to the States to gather knowledge, but then that talent will decide to move to the States permanently. To prevent that, they try to cramp lifestyle and viability.

So my friend, a sharp management consultant, was left with a lot of time on her hands. And here’s what she discovered: She could wake up every day and find a company in the United States to send her money, just by making a phone call—phone companies, any number of Visa issuers, cable TV, airlines. The list was endless. What a phenomenon. She kept a journal of it, and when she emailed me the other day, she happened to have found that journal in a drawer, and we shared a good laugh.

And then a moment of silence. She made close to a thousand dollars that year, in found money. More if you counted the cash value of the frequent flier miles she accrued. That rather short moment of silence ended with me realizing that her little hobby could be transformed into the mother of all comparison shopping lessons for your teen, especially if we zoom in on one area at a time, so we’re comparing apples to apples.

Here’s the gestalt of the whole lesson: The reason my friend was able to collect money just for getting on the phone is marketing, of course: free trials, giveaways, rebates (her favorite), rewards for switching companies, etc. You find the companies that want to win you over, and they’ll give you something for choosing them.

So let’s start with credit cards, because they’re expansive, with a lot of variables, but at the same time uniform. You’re going to let your kid, the one you won’t even trust with your credit card, research the universe of credit cards out there, and decide which one is best for you. Do you have the one most suited to your needs right now? If not, which one should you switch to?

My husband of course cringes at these sorts of lessons, and since getting his little anti-identity theft photo on his credit card, he’s been in love with his card. His reaction was no way, no one is changing his card. That’s okay. If you try this lesson out, and encounter the same sort of resistance, fold it into the lesson. One of the main reasons people miss out on good opportunities is resistance to change. Make your teen ask your spouse to list what he or she likes about the present credit card, and those things become some of the must-have variables in the comparison shopping exercise.

So here are 5 steps for teens to shop around for a credit card:

1. They should interview the household and find out what the articulated needs are. Include what cardholders like and don’t like about their present credit card.

2. They should write down a short-term or long-term wish list of benefits and see which is more weighted. My mother used to say it’s better to buy a few expensive, very well made outfits that you can wear anywhere and that will last, rather than a closet full of cheap clothes that will fray and wear out after a few washes. Whether that standard applies to credit cards is up to the household. Some people are happy switching their credit cards every few months to keep interest-free revolving credit. One of the best lessons teens will learn is that there are short-term and long-term benefits when comparison shopping anything.

My overseas friend didn’t mind calling a different phone company every month and switching her service in order to get the new-customer freebies. Your teen has to calculate what benefits exist for the life of the card, what are the diminishing benefits, such as an introductory interest rate that ends up being a higher than an average rate after a few months.

Then your teen has to apply that calculation to the realities of the project—such as what happens to your credit rating, if anything, if you switch credit cards too often. And the human element: Will family members get annoyed, or not mind at all. If frequent flier miles are the main benefit of any card, then switching cards a lot won’t work.

3. Teens should go online and start making a list of all available credit cards. Have them make a chart of benefits: interest rate, frequent flier miles, shopping rewards programs, affiliation cards (cards co-sponsored by a company, including airlines). Then have them chart shortcomings of each card. This is a good pre-lesson for writing balance sheets, which we’ll do in another blog. Teens need to think in benefit/liability terms.

4. Get on the phone, ask more questions and verify online research. Ask if there are any other offers not shown on the website. When I’m teaching college students, I’m constantly reminded how hard it is for them to get on the phone and ask questions of strangers. I often assign fieldwork, where they need to corroborate research they find online by calling. It’s always hard for them. I always have to nag and remind them. For younger kids, it’s even harder.

Remember, it’s like questioning authority to them. Any adult gets on the other end of the phone, and they feel like they don’t have a right to question. That’s why it’s such a good lesson, though, and great practice.

5. When they pick a winner, or two contenders that may be very close, have them present their case to the household in a formal oral presentation. They should have a chart that backs up what they’re saying. The presentation part is very important, because it organizes thinking in a way that nothing else does, and they need to be able to answer questions on the spot.

By the way, GiveMe20.com also has some advice and information for kids on different types of cards, things to look for when choosing a card, building credit and much more.

Please share stories if you try this at home.

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I can distinctly remember the summer my father forced my brother to work on a construction site. It was between his junior and senior year of high school. I was heading for 9th grade, looking on like my Dad was a monster.

I mean, it was really hot in Washington, D.C. in the summer, and construction sites were dusty and involved a lot of heavy lifting. My brother was furious, and complained every single day of that job. I’m still not sure why he didn’t rebel more. My brother was a straight-A student, a shoe-in for early admission to an Ivy League college, and in my parents’ eyes he could do no wrong. I’d been grounded for one reason or another since I hit puberty, so I tried telling my brother he could take a stand, that Dad would cave, to trust me, I knew. But he never did.

I’m not sure why I was so insistent, but I remember actually telling my father I was worried he had lost his mind. I mean, what sort of example was he setting for me? If that was the reward for straight As, I was definitely going to consider a different path (not that I was in any danger of straight As). Of course my father laughed and told me that I’d only have to work construction if I didn’t get straight As.

Now, naturally, I understand the construction job. It was all about balance. Yes, it was great that my brother was a good student and heading off to get the Rolls Royce of educations. But what’s the one thing my brother was clueless about? You got it: Money. And it’s not that he was a spendthrift. My brother has been cheap since he was a kid. He always had money left over from his allowance, and I always tried to “borrow” it from him, having long spent my own.

What my brother didn’t have as he approached manhood—terminology courtesy of my father—was an inside understanding of how the economy worked, including: how an industry functions and how it relates to the community economy, how business ethics are compromised by the reality of budgets, how hard it was to earn money without a formal education.

My father knew how to pack in a lesson. I guess before my brother trotted off to college, my father wanted to make sure he didn’t drop out to travel the world after paying that Ivy League tuition. And he wanted my brother to understand, from the trenches, the realities of compromise, before he became too theoretical and self righteous in college.

What does this have to do with farming? Well, in this economy construction site jobs may be hard to find, but jobs at community supported agriculture (CSA) farms shouldn’t be. CSAs are community farm cooperatives that grow a crop of local produce for coop members.

CSA jobs may be volunteer, but the lessons are very similar to what you might learn at a construction site. And if learning lessons about money is more important than your teen earning money this summer, it may be a good option. It may also be a good idea if your teen hasn’t managed to find a job yet.

CSAs always need help. The University of Massachusetts has a useful website, including a directory of CSAs in the United States and Canada.

Your teen will be working hard, doing physical labor, learning how hard it is to grow food without use of chemicals and pesticides, what happens when there’s drought, and what it means for the economy that CSAs exist. They will learn the economic and political realities of our food supply. And since they all eat, it will hit home.

As a professor, I have to say that the more teens can learn the ins and outs of an industry—any major industry—the better prepared they’ll be not only for college and the job market, but for their personal relationship to money. The big picture can offer a lot of perspective.

If anyone out there has worked for a CSA, or has had kids who have, please let me know about your experiences.

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If you find yourself more worried than you should be about having your teen lazing around all summer, after a not-so-great semester of school, then consider an exchange student program. Actually, even if you have an industrious honor roll student, consider this option.

But I lead with the more troubled teens, or just the ones without any goals, because people too often think that exchange student programs are best suited for college kids, or over-achieving kids with a demonstrated interest in international affairs.

I’ll argue that kids who seem to care about very little but a circle of friends you’re not too sure about, and have no clue about the value of money, might be the best candidates of all. Or kids who claim to be loners, but are really just lonely. Alienation, indifference, laziness, rebellion, depression—they’re all signs that there’s a great need for perspective, a shot of energy, a break in some psychological impasse. They need some way of finding grounding and focus.

A good way of accomplishing that is taking them out of their comfort zone and giving them an adventure that is also highly regulated and educational. That’s a tough thing to find. Spending a summer, or a semester, in a foreign country will do it.

I know I tend to magnify the money lesson in everything, but honestly, when you’re not living with your parents, and spend a lot of time somewhere, you’re going to learn about managing money in a very profound way—beyond your years, because your awareness isn’t just raised about your own little world of
discretionary expenses. You get an education about cost of living. Period. Why they don’t make being an exchange student a pre-college requirement for teens is a little hard for me to understand.

I’ve had parents tell me that they don’t want to reward their teen’s poor effort in school with the freedom of roaming around Paris for the summer, or escaping a semester of the school year. They think if teens are having trouble with their teachers, this teaches them to run away, instead of digging in and working it out. I understand that. And that may be the case.

But many times battling with your teen won’t produce a winner on either side. And sometimes when they’re at their worst, when you honestly don’t like them, they need the most help, an attitudinal chiropractic adjustment. Change of scene could be the answer, at least in some cases.

Here are a few benefits of being an exchange student. Take a look and see if it would be good for your teen. And check out this Exchange Student website to get a feel for how institutionalized this tradition has become. It’s reliable, organized, and highly educational.

1. Being an exchange student is a world-class college application and resume booster. Maybe your teen could use that? First, the college application. I don’t need to tell you how competitive it is out there for teens, and international living is a great differentiator. Also, think long term: International experience in the job market will only become more relevant as time goes on, and it’s getting harder to come by in universities because of program budget cuts.

2. Here’s my favorite, of course: It will teach any teen the value of their own money from Day 1. No kid will pester and harp on host parents for every little thing they want. Instantly, your teen will look at what things cost, count money, and think before spending. It’s akin to a survival instinct when you’re in a foreign place. How else do you raise this sort of awareness in 24 hours?

3. Macrocosmic money lessons: Being overseas teaches teens the value of goods and services in other country, and in comparison, their own country. If they think gas is expensive here, wait until they see what it’s like in Paris, or Amsterdam. In Paris, gas is about 2.3 times what it is here. In Amsterdam it’s even more. I bought gas yesterday at $2.67 (I was in California last week, and it was $3.09.), so it’s a whopping $6.14 per gallon in Paris.

Europeans tax gas up to 75% of its cost, so it’s hefty. Your kid will get indignant at first, actually ask why they tax so much, and while looking for an answer, they’ll see what such a tax encourages people to do: walk, bike, take the subways and trains. There’s an environmental thought. Lessons about attitude toward money are so well taught on a global basis. There’s so much perspective, and insight into our own habits as a culture, not just a strict mathematical cost proposition. That’s what the gas money lesson is here. Crunching numbers, using the word responsibility a million times.

I will warn you, though: Your teens will come home so savvy, they’ll start nagging you about your own wasteful habits.

4. Happiness. Even if your teen resists going overseas, chances are if they’re unhappy at home, stuck in a rut, this will at least cause some change. Maybe the effect will be that your teen will love being overseas, and have experiences that give him or her a positive perspective of home life. They will miss home, no matter what. Or maybe they won’t love the experience overseas, and will have a new perspective about home based on that experience. Either way, it gives them time to think, to find themselves, take responsibility for their own behavior, and test and learn to trust themselves.

Any exchange student stories out there, either positive or negative? Would love to hear them.

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