When I was growing up, I went to a public school. There were no financial literacy classes offered to me. My parents, immigrants and new to the American financial system themselves, did their best to instill sound financial habits into my life. I knew I shouldn’t spend more than I earn, I should save for things I want, be wary of credit cards and learn to budget. I consider myself lucky. Although I, like many people my age, have made my fair share of financial mistakes, I learned through my parent’s lessons and through my own mistakes to make wiser financial decisions.
The Situation – Underserved Youth
Every two years, the Council for Economic Education conducts a comprehensive look into the state of K-12 economic and financial education in the United States. They found that many parents don’t know how to talk to their kids about money. Almost three quarters of parents experience some reluctance to talk to their kids about financial matters. Don’t assume the school system is picking up the slack. Currently, 17 states require students to take a high school course in personal finance. Only five states require it for high school graduation. Furthermore, fewer than 20% of teachers report feeling competent to teach personal finance topics.
In result, more than one in six students in the United States does not reach the baseline level of proficiency in financial literacy. Four in ten millennials are overwhelmed with debt and more than half are living paycheck to paycheck, unable to save for their future.
The Case for Financial Literacy
As a nation of parents, students, and teachers, it’s time we take a stand for financial literacy. The Council for Economic Education found that students that receive a financial education are more likely to display positive financial behaviors, more likely to save, pay off credit cards each month and are less likely to be compulsive buyers. They are more likely to take reasonable financial risk, have higher credit scores and have lower probability of delinquency as young adults.
Talking to Your Kids About Money
Having open money conversations at home are a key factor in helping your children grow into financially literate adults. Money can be a tricky subject to broach with your children. They hear you talking about money at home and they hear it outside the home, at school or friends’ houses. However, if your kids only information source is their friends, they may get the wrong message.
Take charge of your child’s financial literacy education by designing an at-home financial literacy program. This program can begin at a young age and can be built upon as your children get older.
Topics for Younger Children
What is Money
Teach your children at a fairly young age that money can be exchanged for something they want. Take them to the grocery store and point out the prices of the things they ask for. How much does their favorite cereal cost? How about a candy bar? Explain to your children how the things you have in your home and buy at the store cost money.
Needs vs. Wants
Explain to your children the difference between needs and wants. Since money is not unlimited, there may be times they have to sacrifice something they want for something they need. Illustrate how your family needs a house, transportation, food, water, etc. to continue living. Explain how these “needs” should take priority over “wants” such as a trip to the movies or buying ice cream.
When I was a small child, I thought that when I grow up, I will get a magical card, just like my mom, and I will take it to a machine on the street (a.k.a ATM), and it will give me any amount of money. You can imagine my shock when I discovered I actually had to earn money.
Explain to your children what earning money means to you and your family. Do you or your spouse go to work every day? What do you do? How do you make money? Explain that the staff you encounter at the movies, restaurants and grocery store are all there because they are exchanging their time and service for money. Explain to your children that money is exchanged for good and services, and it doesn’t wait for adults in ATM machines.
Topics for Older Children
Checking & Savings Accounts
Once your children are old enough, you can introduce the concept of a bank and a checking and savings account. Perhaps take them to your bank to open their first debit account. Urge them to put a portion of their allowance or earnings into a savings account. They can save for an expensive toy or, if they’re older, it can be a car or money for college.
Creating a Personal Budget
As your kids get older and start earning their own money,they can take on more financial responsibility. Perhaps they need to pay for their own gas, car insurance or cell phone bill. Teach them how to set aside portions of their money for these financial responsibilities. You can show them how to factor in expenses, savings and spending money into a simple budget.
As your children grow older they will look to make larger financial purchases such as buying a car or taking out a student loan. Even if you help them pay for a car or if they go to college on a full scholarship, this is a vital time to talk to your children about debt. Explain that there are different types of debt (credit cards, student loans, car loans, etc.) and that they can have various effects on your child’s financial future. This is a good time to explain what a credit score is and how it’s used by lenders. Explain to your children how to safely build a good credit score and teach them how financial mistakes can lower it.
Take It a Step Further
As a parent, you don’t have to accept that that your children may be underserved by the public school system when it comes to financial literacy. Start a conversation with your children’s teachers, other parents, school administrators and even your local government if you want to see a change for your children.
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