As we become adults, one would assume that naturally we also become more attuned to finances and how to apply that knowledge to the real world. However, that is not always the case. According to FINRA’s ongoing National Financial Capability Study,1 63% of Americans are financially illiterate. Perhaps this ineptitude comes from a lack of understanding on a foundational level. An ongoing concern is that children are not receiving the education they need to make successful financial decisions and practice that knowledge in a real-life situation. If you’re reading this article, chances are you have already begun to take the necessary steps to inform and educate yourself, but it is also important to know how to pass on that knowledge to future generations.
In comparing financial literacy to reading or writing literacy, most would agree that it would be difficult to get by in the present day with limited reading or writing knowledge. The same can be said for monetary knowledge. Our financial world has become increasingly complex, and although there are now more tools than ever to manage your financial well-being, the resulting power is twofold. Even basic decisions in terms of insurance, saving, buying and mortgaging a house, and retirement planning require some financial knowledge and can be confusing, particularly for young adults.
Yet, financial literacy is often left out of the education system, and only half of the states’ high schools have specific financial literacy requirements. A mere five states mandate high school students take a semester long personal finance course.2 Freshly-graduated, inexperienced high school students can prove particularly impressionable and lacking in basic financial skills. It is incumbent on families to provide support throughout their growth so that they can be as best prepared as possible when entering the “real world.” As a parent and/or guardian, you have two advantages that youngsters may not, that can be translated into teaching tools for your children: experience and perspective. Exposure to money at a young age can prove invaluable in instilling lifelong practical saving habits.
There is not one ideal time to talk to children about your finances, but the earlier they start learning about money, the better their chances for financial stability in the future. You can start by finding teachable moments in everyday activities.
Preschool and Elementary Age
You can begin by teaching a preschool-aged child about bartering and all of the different shapes and sizes of money, progressing into how to earn and save money, and the differences between needs and wants. A few active examples include saving a birthday gift from a grandparent or earning a weekly allowance from completing household chores. You can consider opening a savings account for your child as well.
Tweens and Teens
When your child becomes older, you can teach him or her more of the specifics behind income and expenses, saving for short- and long-term goals, earning and paying interest, and the stock market. It is important that your teen has exposure to various life skills and knowledge, such as getting a job, budgeting, credit and debt, paying for college and buying a car to name a few. If your child’s high school has a financial planning course available, he or she should enroll. Some local community centers also offer find consumer skills classes or other workshops that teach students how to budget and other beneficial life skills.
Do you have a financial advisor? Ask them if they would be willing to have your teen son or daughter join in your next meeting. By setting a good example for your child now, you are proactively helping them take the first steps toward financial literacy and a healthier, well-informed financial future for years to come.
1 http://www.usfinancialcapability.org
2 http://www.champlain.edu/centers-of-excellence/center-for-financial-literacy/report-making-the-grade