Why is it so hard to talk to kids about money?

As a business writer for more than 20 years, Jayne Pearl assumed that she knew how to teach her son about money. But when she began giving him an allowance at age 7, she received a humbling surprise.

"It was a disaster," says Ms. Pearl of Amherst, Mass. "He couldn't spend it fast enough. We argued a lot. I was clueless how to deal with him."

She has plenty of clueless company. Financial issues remain an awkward topic in many families. In a consumer society, as ATMs bloom on every corner and wallets bulge with credit cards, parents often find it hard to teach responsible money management.

"Right now money is still harder to discuss than sex," says Neale Godfrey, author of "Money Still Doesn't Grow on Trees." Only a quarter of 13- to 21-year-olds say their parents have actively taught them how to manage money, the American Savings Education Council reports.

That ignorance can have long-lasting consequences. Last year 150,000 young adults between 18 and 25 declared bankruptcy, Ms. Godfrey says. In addition, one teenager in five doesn't know that a loan must be repaid with interest, according to a new survey by the Charles Schwab Foundation.

Why so much parental reticence when it comes to money talk?

Some parents cling to the outmoded Puritan ethic that money is bad, Godfrey says. Others think that if they talk to their children about money, they must disclose how much they earn and examine their own bad financial habits. Not true, Pearl insists. "We don't have to open up our profit and loss statements to our kids."

And then there's the guilt factor. Many times parents substitute money for time, Godfrey observes. She urges parents to think carefully about the messages they're conveying to children.

Whatever approach families take, attitudes toward money trickle down from generation to generation. "If parents are able to be open with each other about money, then they're going to be that way with children," says Mary Staton, a financial adviser in Charlotte, N.C. "But if it's such an emotional issue that they can't talk about it readily, then they probably won't talk about it with their children."

Even without specific conversations, children pick up signals. The bulk of communication about money is nonverbal, says Jon Gallo, a Los Angeles estate planner for wealthy families.

"It's what you do, how you behave," he says. "Do the parents play credit-card roulette - max out one, use another? That's sending a message to the children about how to behave with money."

He suggests that parents take advantage of "teachable times" that occur daily. A 4-year-old can put money in a parking meter, for example. Children can also pay for items at the grocery store.

As Pearl considered ways to help her son change his cavalier attitude toward money, she gave him incentives to save by encouraging him to think about something special he wanted to buy. "I said, 'If you save this amount, this is how long it will take you to earn it.' "

When he was 10, he saved for a year and a half to buy an electric guitar. Calling it "a tremendous accomplishment," Pearl says, "I would have robbed him of the achievement he felt if I had bought it for him."

Still, Pearl, the author of "Kids and Money," does not pretend that these lessons are simple. "You can't walk out the door without being bombarded with ads. The message is buy, buy, buy. Parents are the only place where these messages can be countered."

Saving isn't the only skill parents must teach. Children and teenagers also need to learn how to spend wisely. "If you have a kid who's hoarding money, parents may think that's great," Pearl says. But if parents don't help them achieve a balance between saving and spending, that could create problems if they marry someone who spends excessively. Equally essential are lessons in giving - learning the importance of charitable contributions.

Pearl also believes in letting children make mistakes when they spend. Rather than saying, "I told you so," she says, ask them, "How would you do it differently today?"

Ms. Staton also finds value in giving children early experience in paying penalties. "If they don't get a video rental back on time, they pay the fine. They feel that's punitive, but in the long term, it's a small penalty. When they're older and they miss a car payment or a house payment, they get a penalty, and it affects their credit rating."

Ellen Weiss of Lake Zurich, Ill., started early to teach her son and daughter about money. As soon as they were old enough to write their name with a fat pencil, she took them to get a passbook savings account. She also makes a practice of handing over their allowances in the bank lobby, where she asks, "How much are you depositing?"

The training has paid off. Max, now 11, and Stephanie, 14, keep close track of their savings-account balances. "They probably can tell you to within a dollar what's in there," says Ms. Weiss. This year Stephanie withdrew $800 to help pay for an eighth-grade class trip to Germany.

As one way of emphasizing that even small amounts of money have value, Weiss keeps a change jar in the kitchen. If she finds money around the house - a pile of coins on top of the dryer, for instance - she puts it in the jar. That becomes "souvenir money" for a trip. Over seven months, the jar might add up to $18 or so. "One time it really surprised them by going over $30," she says.

Many students face temptation to spend at every turn. College freshmen receive an average of eight credit-card solicitations the first week of school, according to Godfrey. Without proper instruction, she warns, "It's like handing the keys to a car to a child and saying, 'Go figure it out as you're driving.' None of us would do that. Why would we hand them a financial vehicle and expect them to figure it out? We need to be involved in that process."

To give parents added support, financial institutions are stepping in to help with education. PNC Bank in Pittsburgh is offering two half-hour courses for freshmen during orientation week at area universities this month. Students learn the basics of budgeting, reconciling a checking account, and using credit wisely. They also discuss the consequences of not paying bills on time.

"This electronic generation knows how to get cash easily out of ATMs, but not how to manage their finances and control their cash," says Lila Batz-Krause, executive vice president of PNC Bank. Some students even lend their ATM cards and PIN numbers to friends.

At KeyBank in Cleveland, high school students 16 and over can open a free checking account with a parent. At 18, the student can take the parent's name off. The account limits the possibility of overdrafts. If students do overdraw, penalties are less severe than those on standard accounts.

The bank also encourages parents to give students a prepaid debit card. "If you want them to have only $100, that's all you load in," says Dan Ryder, a bank vice president.

Other financial experts underscore the importance of such guidance. Money is the No. 1 cause of divorce, Pearl notes. By teaching children to be responsible and values-based in using money, she says, parents accomplish a dual purpose: They help offspring to be financially successful, and they help ensure that money won't be a big problem in their relationships.

Calling financial literacy "a solvable problem," Godfrey tells parents, "You just have to commit yourselves. You have to start teaching the concept of finite. 'No' is a very important word for parents to learn."