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What Your Child Should Know About Money By Key Ages

Parents frequently hear that it’s important to teach children about money, and it’s hard to imagine any mother or father arguing the point. But obviously you’re rushing things if you’re trying to explain revolving credit to a 5-year-old. So if you’re wondering what concepts kids can grasp and by what age, here are guidelines to get you from kindergarten to college.

Your child is in kindergarten. As you’ve observed, your child knows plenty about money. Every time you go through the grocery store checkout aisle, he probably demonstrates that he understands there are cool things to buy – if only he can convince you. But what specifically should young children know about money? According to the Money As You Grow website (, launched by the President’s Advisory Council on Financial Capability, a kindergartner should grasp four key concepts:

1. You need money to buy things.

2. You earn money by working.

3. You may have to wait before you can buy something you want.

4. There’s a difference between things you want and things you need.

How to teach your kindergartner: Even some grownups have trouble with that last part. But the best time to begin teaching kids about money is when they are young, before they become preoccupied with digital devices and other distractions. “Five-year-olds are inquisitive, they want to learn,” says Diana Webb, an assistant professor of finance at Northwood University in Midland, Michigan.

So how can parents begin to lay a solid financial foundation in young kids? Along with finding teachable moments in your everyday routine, buy your child a piggy bank, suggests Brenda Nayonis, a senior vice president at Rockford Bank & Trust in Rockford, Illinois. “This helps them become more financially aware,” she says. If you’re so inclined, she adds, you can even bring the money they save to your bank, which probably has a savings program designed for children.

Feeling really ambitious? You can also set savings goals for your kindergartner, says Rakesh Gupta, a business professor at Adelphi University in Garden City, New Jersey, who teaches a personal finance seminar for college freshmen. Then, when your kid meets his goals, you could deposit “interest” in the piggy bank, and explain what interest is, he says.

Your child is in sixth grade. By now, according to Money As You Grow, children should understand the concept of saving, including what compound interest is. Conversely, they should understand that credit cards are loans, not free money, and that if bills aren’t paid in full within a month, you’ll wrack up interest, paying more than you originally spent. They should also recognize that putting personal information, such as bank account or credit card details, on a website can be risky because someone could steal it.

How to teach your sixth grader: If your child doesn’t already have an allowance, it’s time, Gupta says. He even thinks opening a bank account for your kid is a good idea by this age -provided you help him use it and teach him to keep track of incoming and outgoing money.

And while it may seem premature to give your children a bank account and an allowance, Webb says, “kids will have a far better understanding of money if they realize nothing is given to them without effort.”

Your child is a freshman in high school. Not only should your teen be thinking about college and how much it could cost, according to Money As You Grow, she should also understand that if she won’t have the cash to pay for something within the next month, she shouldn’t pay for it with plastic.

Ted Gonder, co-founder and CEO of Moneythink, a Chicago-based nonprofit specializing in educating inner-city high school students on financial literacy, says freshmen should also recognize how money can either help – or stand in the way of – achieving their dreams.

“They should have goals in mind for their lives and understand that money is inextricably linked to those goals’ fulfillment,” Gonder says.

Got portfolio losers? Turn them into tax savings

It’s harvest season for your portfolio, at least if you are hoping to save on taxes.

December is the time when many people think about harvesting tax losses to cut their tax bills (though it’s possible any time of year). Selling stocks or other assets that have lost value generates a reduction in your tax liability that you can use to offset capital gains.

The market’s recent ups and downs have been unsettling, but the silver lining is that any losses in your portfolio may make April 15 considerably less unpleasant if you decide these are assets you no longer want to hold.

Read More6 ways to lower your 2014 tax bite

“Do I have some security that I just don’t fundamentally believe in any more and I want to reduce my allocation or get out? Do I have an asset allocation that is out of balance?” said John Sweeney, executive vice president of retirement and investing strategies at Fidelity. If so, he said, “you can sell both your winner and the security that is underwater.”

Selling short-term assets is especially helpful at tax time. Losses on those assets can be used to offset any short-term capital gains, and short-term capital gains are taxed at ordinary income rates, not at the lower long-term capital gains rates.

The higher your tax bracket, the greater the potential for tax-loss harvesting to save you money. Top earners in the 39.6 percent income tax bracket wind up paying a rate of 43.4 percent on short-term capital gains, since taxpayers in that bracket also pay the Medicare surcharge of 3.8 percent.

“Technically, everybody can and should be looking to do this,” said Paul Giliberto, senior wealth planner at SunTrust Bank. “[But] higher income taxpayers are the ones that stand to gain the most.”

Read MoreHow traders are playing year-end selling

In fact, in the lowest tax brackets, your long-term capital gains rate goes to zero. In that case, harvesting gains makes more sense than harvesting losses. It won’t affect what you owe in taxes now, but you will be able to lock in a higher cost basis if you repurchase that asset at the current higher price, reducing your potential future tax liability.

“People at the zero capital gains rate can sell winners and get them back at a higher basis at no cost,” said Michael Kitces, partner and director of research at Pinnacle Advisory Group. But for those people, “tax-loss harvesting is a disaster. You step your cost basis down and get no savings.”

Long-term tax planning can also help you decide whether to harvest tax losses. If you expect your income to be lower in future years — if you are heading into retirement, or have just coming into a sudden one-time windfall, or you are selling your home and downsizing — it may make sense to harvest losses now when the tax savings are greater.

If you believe overall tax rates are on track to fall, harvesting losses now also makes sense.

“Take the loss at the higher rate if you think the next president will have a policy of lower tax rates,” said Bob Meighan, a vice president at TurboTax. “People are all about saving today.”