Teach Them to Be Choosy

Start simple - adding up your spare change - then work up to the more complicated material, such as investing in stocks and bonds.

That's how James Phelan teaches his three children about the world of high finance.

The teaching part comes easily, and it should: Mr. Phelan teaches math at Choate Rosemary Hall, a private secondary school in Wallingford, Conn.

Harder is helping his three young sons pick investments.

More than money

Teaching children the importance of investing goes beyond just money, Phelan says. It's about good choices in life, learning responsibility, using your assets productively, and linking economic gain to hard work.

Phelan's children, for example, look for ways to earn money for savings - cutting lawns, helping neighbors with chores, and getting that important paper route.

Profitable ideas

Once they make the money, the investment principles are simple.

Investments must grow faster than inflation, taxes, and expenses - such as administrative costs and commissions. Otherwise, you're losing money.

So far, the Phelans have done well.

Case in point: Their oldest teenager started by depositing his earnings from a paper route and holiday gift money in the bank.

"I told him that he had to put two-thirds of his earnings into the account," says Phelan. Once the boy built a "decent balance," the money was shifted to bank certificates of deposit. His son later moved some of it into stocks.

Experts agree on the importance of a dialogue with children. "Dealing with money issues should become enjoyable for children," says Michael Wilson, a professor dealing with family financial issues at the College for Financial Planning in Denver.

It helps when parents discuss their own investments, such as mutual funds, at the dinner table. This gives them a chance to explain and create familiarity with the idea of investing.

Do they sell skateboards?

You might talk about a mutual fund that owns stock in a company with well-known products - Compaq Computer, Wal-Mart, or American Airlines. It helps connect the idea of investing to the world around them.

Discuss investment mistakes, too. They underscore the idea of risk and the long-term view.

One step at a time

Young people, Mr. Wilson says, should learn about wealth-building through incremental steps. Successfully completing a chore can carry economic reward, he says, although "good works," such as helping someone in need, should not necessarily be financially rewarded. Such deeds carry their own reward, he says.

And encourage youngsters to consider choices for their money. If the "best" item costs a bit more than a less-desired item, talk about saving for the better item, Wilson says. Later, when the youngsters actually invest in stocks and bonds, they will know they should attempt to acquire the best investments, he says.