Financial literacy for children is a noble education idea looking for a home – literally.
Historically, public education policy has de-prioritized money management studies children and most parents either don’t have the time or inclination to pick up the slack.
Harsh? Not really.
According to a recent study from Country Financial
https://www.countryfinancial.com/en/about-us/newsroom/year2019/parents-just-dont-understand--finances---3-in-5-americans-rely-o.html, when kids do go to their mom and dad for finance and investment advice, the experience often doesn’t turn out well for the family.
“While 61 percent of Americans consider parents a key influence in how they handle their money, 46 percent of parents with kids under age 21 give themselves a grade of “C” or lower in financial literacy, according to a survey released today by Country Financial.
Additionally . . .
--- 53 percent of parents feeling confident about managing a 401(k)
--- 61 percent say they’re confident talking about planning for retirement
--- 55 percent are confident with the subject of taking or paying off student loans
--- Only 33 percent are confident about investing in the stock market
"Parents have the benefit of having real-life experience that has helped them to sharpen their personal finance skills, but most are not going to be experts in every topic," said Tim Harris, executive vice president at Country Financial.
That dearth of institutional knowledge in schools and at home are taking a financial toll on younger Americans. Country Financial found that 48% of 18- to 34-year-olds “feel somewhat or not at all prepared to manage their finances when entering adulthood.”
“To improve financial stability for our future generations, we need to start by raising financially-smart kids now,” said Tim Sheehan, chief executive officer at Greenlight, a financial literacy education company in Atlanta, Ga. “When our children are young, we have a huge opportunity to start discussions about money early, giving them real-world experience without real-world stress.”
“Kids are like sponges, so when they form a positive association with concepts like earning and saving their money, they’ll continue those habits into their adult lives,” Sheehan said.
As Sheehan noted, money management isn’t always taught in schools. “Now that parents are spending extra time at home with their kids during the pandemic, there’s an opportunity to start talking about it,” he said.
School’s in Session
How can parents turn that equation around and start their kids on the road to more robust levels of financial literacy? It starts right where families meet the most – at the table.
“The starting point is to have open discussions at the dinner table about financial items,” said Brian Carlson, a wealth manager at GCG Financial, in Arlington Heights, Il. “Whether it’s about the groceries, cable bill, mortgage, or even toys, anytime kids hear their parents discussing money it's a lesson.”
“The more it's discussed the more the kids will grasp that money doesn't grow on trees,” Carlson adds. “Rather, it takes a lot of hard work to earn it.”
What are the best steps parents can take to teach their kids financial lessons for life? Experts advise taking the following steps:
Keep it real. To encourage smart money habits, make lessons personal.
“Find out what your kids are saving for and use it as a chance to talk about how to earn money and manage a budget,” said Sheehan. “As parents, we know our kids better than any teacher or tutor, so it’s a great opportunity for us to teach valuable lessons that carry meaning for them.”
Pay for housework and yardwork. “Setting chores helps kids understand the value of hard work, custom savings goals empowers kids to strive for success and balance monitoring gives them the tools to start making tradeoff decisions,” Sheehan added.
Start early. Carlson said he and his wife got a jump start on teaching their kids money management skills.
“We started each of our kids counting and explaining various money terms as early as five-years-old.,” he said. “The earlier you have the conversations, the more educated they will become and they'll grasp the concept much more quickly,” he said.
Bring the kids along. It’s a good idea to make money lessons in real life, so kids get a sense of the personal financial lifestyle. “For instance, when we make bank deposits, we always bring our kids so they see what exactly is occurring,” Carlson said.
Keep track. Carlson’s kids also have their own ledger for their household bank.
“When they're given money for whatever reason they track their inflows on their ledger and when they want to buy something they come to the bank of ‘Mom and Dad’ for the cash and decrease their ledger accordingly,” he said. “Basically, we’re teaching them to spend money appropriately on items they really want or need. We also teach them about investing and interest as we have them add one percent of interest to their household banking ledger on a monthly basis.”
Leverage “piggy bank” savings: For most adults, one of the first experiences with a savings account was in the form of a piggy bank. That’s a strategy that still holds true today.
“Given the extra time your children have right now, make a project out of decorating a piggy bank and teaching them about why and how they can save money using them,” said Kavita Kamdar, head of financial health for youth and families at Chase. “As your child ages, transition them from a piggy bank to a three-jar method (one for saving, another for spending and a third for sharing) that allows them to categorize their money into savings, spending money, and funds to share.”
Set savings goals: If your child is desperate for the latest and greatest toy, make them a greater part of the savings and purchase process, Kamdar advised. “Help them to understand the value of what they are purchasing, especially with regard to how long it may last physically and how long will they be interested in playing with it,” she said.
Play a game: “If going to a grocery store with your kids is not an option right now, set one up at home,” Kamdar said. “Use items you already have in your pantry that kids are familiar with, especially those specialty treats that they are insistent upon having. Offer them a set amount of money and teach them what are able to buy with it.”
Take Your Time with Financial Literacy Learning
One last piece of advice. Have patience with the financial literacy process.
“Don't exasperate your teen by trying to cover all these topics in one sitting,” said Patti B. Black, partner at Bridgeworth Wealth Management, in Birmingham, Al. “Like a sex talk with your teenager, it will take more than one conversation to address money with your child.”