Teaching kids about money

Some years ago, my sister decided it was time to start teaching her very young son about the value of saving. So, if he accumulated four quarters, he could trade them for something he valued more -- a dollar bill.
It worked just fine -- a young child can appreciate the value of patience, even if his math skills need work.
How much can children of various ages absorb?
Each kid is different, of course, but the nonprofit National Endowment for Financial Education recently issued some useful guidelines.
From age 2 to 4, children can learn that money has value and should be kept safe, NEFE says. The lesson can be as simple as letting the child hand money to a clerk for a small purchase.
Young children often are anxious to save and can be given a clear container so they can see their savings grow.
At age 5 to 7, children are ready for allowances of a few dollars a week. They can be allowed to make their own spending decisions, with some guidance from adults. NEFE says it's important that parents let children learn from their mistakes, so don't bail the kid out after he's squandered his allowance.
As kids get older
Children age 6 and 7 can understand the value of shopping around. They can grasp the idea that credit and debit cards are the same as money, and that the cash machine doesn't hand out money for free.
From 8 to 10, children should be taught how money is earned, and that adults have to pay for housing, food and other expenses.
At this age, children can understand the difference between wants and needs, and can arrange each list by priority. They should be encouraged to save for important purchases.
From 11 through 13, children should be given more responsibility. They can be asked to write budgets listing their income and expenses. Allowances can be made larger, but should also be less frequent to reinforce lessons on budgeting and saving. Instead of a weekly allowance, the child might get her handout only once a month.
At this age, children can learn about interest and compounding. Given that bank interest rates are discouragingly low, consider setting up your own "bank" with more generous terms.
Teen-agers are ready to learn about the gamut of adult finances, including investing. The big challenge is to adhere to the earlier lessons in the face of pressure to keep up with the fashions and other materialistic pressures.
'Wash sale rule'
As I said in a recent column, fall is the time to sell money-losing investments to produce tax losses that can be claimed on your federal return the next April.
But what if you think your loser will recover?
In that case, you can have it both ways -- selling to produce the tax loss, then buying the same investment again to profit from any future gains.
But beware the "wash sale rule." If you buy an investment that's "substantially" the same within 30 days before or after selling the loser, the tax loss will be disallowed.
If you sell shares in a Vanguard Group's Standard & amp; Poor's 500 index fund, you'll violate the wash sale rule if you buy any S & amp;P 500 fund within 30 days, even if it's from another company.
If you don't want to wait 30 days, you can get around this problem by purchasing another investment that's not substantially the same but tends to behave in the same way, perhaps because it's in the same industry. Thus you might sell one tech-stock fund and buy another.
But before playing this game, keep one thing in mind: The tax you save today may be offset by a tax you have to pay later. If your XYZ Corp. shares fell from $20 to $15, you can realize a $5-per-share loss by selling. You could then buy XYZ Corp. shares in 31 days, preserving your tax loss and assuring you can profit from a future gain. But if you buy at $15 and the stock then jumps to $20 and you sell, you'll be taxed on the $5 gain.
With taxes, the investor's victories are often bittersweet.
XJeff Brown is a business columnist for The Philadelphia Inquirer. E-mail him at brownjphillynews.com.