Financial literacy is understanding how money works, how it is earned or made, how it is managed and how it can be invested. Financial literacy includes balancing a checkbook to creating a retirement plan. If we breakdown the term, we would find many are literate but not about their finances. Our attitudes around money are learned at home, school, work or even media. The sources often send out messages that are not protective. People use money but do not know about money.
The way we handle money will influence how our children think about money. A majority of children start out thinking of money as something in endless supply. The reality is different for most families. Children often hear the expression “money does not grow on a tree”. But after hearing that, how many parents explain why getting those new sneakers is not possible? Parents are reluctant to talk to their children about finances. Talking about money raises many emotions and can get uncomfortable. Parents will avoid the topic to shield their children if money is a family concern. Still, other parents are not confident in their abilities to be financial role models. The topic then remains unaddressed, leaving children without a true understanding of how money works in their lives.
Schools too are failing to educate children about money. The Council for Economic Education (CEE) surveys the state of economic and financial education every two year for grades K-12. The most recent survey found: 20 states require high school students to take a course in economics; 17 states require high school students to take a course in personal finance; 16 states require standardization in testing economics; 5 states require high school students to take a standalone course in personal finance for graduation. The report also discusses the benefits of teaching financial literacy in schools but yet the strides for progress are slow.
While discouraging, parents should not throw their hands up. Children have the opportunity to learn about money even before they are school aged. For younger child, we can start with a piggy bank then incorporate routine household activities as learning tools. Trips to the groceries, dry cleaners or even grabbing food while running errands can all be used to discuss the value of money. For children who receive an allowance, ensure that allowance is associated with age appropriate chores. Take kids to the bank and help them open an account. Look for banks offering no fees and minimum balance for children’s accounts. Encourage regular deposits. Steer kids to deposit money gifts. As the balance grows, teach them the concept of interest. Parents of teens can teach budgeting and distinguishing between needs and wants. Help them understand while water is needed for survival, flavored water is not because the only difference is taste.