It is not uncommon to hear older people saying they wish they had learned how to save from an early age. For that reason, such parents will give their children a piggy bank in a bid to encourage them to cultivate this idealistic behavior early on in life. However, is that enough?
The famous PISA 2015 Financial Literacy assessment states that only 10% of children in the United States can analyze complex financial problems. Those who don’t meet the bare minimum with regards to having financial literacy fall at one in every five children. With the projected number of children in the US being 78.3 million in 2018 according to the Federal Interagency Forum on Child and Family Statistics, it becomes clear just how much of the child population is in need of education in financial literacy.
Both parents and teachers are to blame for this lack of understanding in the child population. Data gathered by the Financial Industry Regulatory Authority’s Investor Education Foundation show that it is students who take finance courses to help them manage their finances end up having lower debt and better credit scores. While there are educators who can help children become better versed with money, there are exercises that parents can implement backed by the reasoning behind them. They should however not be afraid that their children won’t understand complex ideas; for example, there are ways to explain what an auto accident injury lawyer does without getting into the jargon.
When discussing money with your children, do not merely have exercises in place regarding how they should better spend their money and the importance of saving. Being financially smart is more than putting money aside for a rainy day or making better purchases. So consider going into life fundamentals that not only apply to finances, but also in every other facet of life. According to Adrienne Penta, one of the founders and the executive director of the organization Center for Women & Wealth, children require lessons in delayed gratification and autonomy to succeed. These are sentiments echoed by M. Scott Peck, the author of the book The Road Less Traveled.
Delayed gratification requires a high degree of discipline as children learn willpower to get through a little bit of pain via saving in order to enjoy something better later; for example, having enough money to purchase a toy. What parents assume is that this is something they can teach their children but they do not do the same; that is where they go wrong. Kids are intelligent and use the behaviors they see in their parents to guide their action now and later in life. Parents should, therefore, be active in their teaching of this lesson.
As for autonomy, letting your child decide what to do with their money gives them greater ownership and responsibility for the behavior. They ought to learn how to handle their finances, and that begins according them allowances for age-appropriate chores and activities.
For the parent, it is about equipping oneself with resources such as books, articles, and classes that help increase personal financial knowledge and getting tips to making children intelligent about all things money, an aspect that streams into other areas of their lives.
Photo Credit: Alan Cleaver
One thing we did (actually several things all related) is looked for money. There are an amazing number of coins laying around and quite a few bills (even a $100). When we had enough coins we would roll them up and when we had enough rolls we opened a bank account. By doing this, my son (he was about 4 at the time) had an excellent understanding how long it took to “earn” his money – and did not want to spend it. Something he still does not do. He was well ahead of peers with counting by 1, 5, 10, 25 and with fractions. His bank statements taught him about interest. We had many conversations about what to do if he saw someone drop money, or if he could figure out who the money belonged to. We found many foreign coins, that we then looked up on the map. It all started finding a $10 bill – and it lasted about a year or so – though he still does look, he does not do it nearly as intensely (it was mildly embarrassing at times – but funny). He learned a lot from it – the value of money being one of the best lessons. The other thing that you should do is answer their questions, my kids know almost everything about our finances – we never sat down and had a lesson, just answered questions as they arose .
Completely agree about sharing everything, Marc. We do the same with our kids.