Did you know that only five states in the U.S. (Alabama, Missouri, Tennessee, Utah, and Virginia) currently have requirements for financial literacy classes at the high school level? I’m not a big fan of the current teaching financial literacy and personal finance in public schools. Parents need to be teaching kids about money – not necessarily our school teachers.
Personal finance is something everyone has to deal with in their lifetime, and the lack of education on this crucial life skill is especially concerning for a majority of student loan borrowers. 43 million and counting as of 2016 don’t have the tools and knowledge to manage their $37,172 student loan burden according to 2016 average rates reported by Student Loan Hero.
Once kids are in college, the picture looks somewhat bleaker. According to LendEDU’s 2016 College Students and Personal Finance Study, a whopping 59% of college students gave themselves a grade of ‘C’ or lower when asked about their personal financial management skills.
More shockingly, 58% of college students surveyed said they did not save money each month and 43% said they did not track their spending at all.
If kids don’t develop these skills by the time they get into college, then they’re going to have a rough time when they get into the real world and the bills rack up. Expenses get more complicated, and major investments like mortgages, kids, and retirement hover on the horizon.
If nobody ever taught them about personal finance when they were younger, then this could create lifelong problems for them and their families. If parents do not step in with teaching kids about money, then they may not be too interested in learning about budgeting or investing once they’re busy adults.
Luckily, you can easily prevent this from happening to your kids by teaching them about various aspects of personal finance before they grow up and move out. But giving a teenager a book on saving for a mortgage or retirement is so boring and what 6 year old is going to wrap their minds around the complex idea of budgeting if they’re still learning to count into the hundreds?
Teaching Kids About Money
The trick is finding age-appropriate and fun ways to teach your kids about money. Here are a few ideas to get you started:
The trick to teaching kids about money is to find age-appropriate and fun ways to teach them.Click To TweetDo you struggle to teach your child about money? You’re not alone. Teaching your child about money is important. And, they should learn money concepts and lessons early in life.
How many times have you heard that expression? Yet so many parents pass on bad habits and misinformation, especially when it comes to money. Children watch everything their parents do when it comes to money — and it’s not always a positive influence.
Some parents claim that they will teach their children about money when they get older, or that they don’t want to burden their kids’ childhood with budgeting and debt. The problem with that approach is that too many kids grow up without any money sense — and then make mistakes in adulthood that send them into a spiral of debt and financial struggle. Instead, according to many of the top financial experts, it’s important to begin teaching your children some of the fundamentals of wealth as early as elementary school.
Delayed Gratification
We live in an instant gratification world. Want to watch your favorite movie? Just turn to the “On Demand” channel. Microwave ovens cook food in seconds, ATMs spit out cash just as quickly and we can send important messages using our phones at the speed of light. No one needs — or wants — to wait for anything anymore.
However, the need for instant gratification and getting what you want right this second is that it can lead to questionable financial decisions, such as using credit, taking out loans or spending money earmarked for other expenses. Children need to learn how to wait for the things they want, whether a new toy or an outing with friends.
Waiting not only allows them to determine how much money they need to save to purchase the item, and take steps toward saving that money, it also helps them determine whether they really want to the item. The shiny, new toy isn’t always the best, and a few days or weeks of “thinking time” might divert their attention to something more worthwhile.
Living Within Your Means
The availability of easy credit has made it possible for many families to live well beyond their means — the average American adult carries around $5,000 in credit card debt, in addition to debt for mortgages, cars, and student loans. While some debt is so-called “good debt,” in general, a high level of debt indicates that one is spending more than he or she makes.
Much of that spending comes from misguided efforts to “keep up with the Joneses.” When your friends and neighbors are going on expensive vacations, driving newer cars and getting a new “toy” every week, it’s easy to develop a case of the “me toos” and wants to have those things for yourself.
However, it’s more important to teach your children that just because someone else has something, that doesn’t mean that you can or should have it too. Don’t overspend to maintain appearances or keep up with everyone else, but instead model restraint and careful planning.
Difference Between Good Debt and Bad Debt
As mentioned earlier, there is such a thing as good debt. In general, good debt is debt that allows you to get something that you need (such as a home) without depleting all of your cash reserves or other assets — or debt that allows you to make your money work harder for you. For example, you need to purchase a new computer (note the need portion of that sentence). As you explore your options, the retailer offers
As you explore your options, the retailer offers to finance with no interest for 12 months. In that case, purchasing the computer using the finance option makes sense, as long as you pay the bill in full before the special financing expires. You’re effectively using someone else’s money to make your purchase, allowing your money to be used for other priorities.
So what is bad debt? Bad debt is any debt that’s incurred getting things that you want, but don’t necessarily need, such as a swanky vacation. Instead of charging the trip and paying it off for years to come — and paying significantly more, thanks to interest — delay the trip until you have enough cash saved up.
The Value of Entrepreneurship
The single best way to ensure financial freedom and build wealth is to become an entrepreneur. It’s almost impossible to become wealthy working for someone else, so it’s important for parents to encourage and support their children’s entrepreneurial efforts. Whether it’s opening a lemonade stand in elementary school or starting a more sophisticated business, later on, foster your kids’ entrepreneurial spirit to help them build wealth later in life.
How to Teach Your Kids About Money
“This or That” Game (Ages 4-6)
Personal finance education shouldn’t wait until your kids are in high school or college. You can start as young as 4 years old with the “This or That” game, in which you compare two items and hold out a couple dollars to demonstrate the finite quality of money.
For example, pull five $1 bills out of your wallet and explain to your child that they can have a stuffed animal that costs $5 (then the money goes away and there’s nothing left!) or they can have a keychain ($3 goes away) and use the remaining $2 for ice cream. They may be too young to budget, but “money is a limited resource” is an important lesson for kids to learn as early as possible.
Monetize Individual Chores (Ages 5 and up)
Many parents give their kids a weekly allowance – sometimes without having to work for it – but there are much more effective ways to teach your kids about income, saving, and spending than by simply throwing money their way like a mini “salary.”
If you monetize individual chores, you give your kids more autonomy over their financial lives by allowing them to either pay you for chores they don’t want to do or earn money from a menu of chores that needs to be completed in a given week. Flexibility with chores, along with the potential to control their income, will significantly contribute to your kids’ financial literacy in ways that a mere allowance never could.
Coupon Clipping Contests (Ages 8 and up)
If you currently use paper ads or digital apps to save on everything from groceries to clothes for the family, then you’re off to a great start. Step up your couponing game by making it a family competition. Here’s how it works:
- Create a shopping list for the week. Include a budget for each category and specific brands for items on the list, if necessary.
- Show your kids where to find coupons (younger kids can clip from paper ads, while older kids can try out different couponing apps on their smartphones and/or tablets).
- Set up a prize for the kid (or family member, if you have an only child) who saves the most money each week. This prize can be a homemade coupon for something they want (ice cream, movie ticket, etc.) or you can make everyone a winner by depositing the amount they saved into a savings account that they’ll have access to at the end of the month or year.
Simple stuff, right? Coupon clipping contests not only save you time, but they also foster a competitively frugal spirit in your kids and teach them valuable, money-saving skills that will benefit them for the rest of their lives.
Student Loan Research Reports (For high schoolers)
“American students know almost nothing about their college loans,” Bloomberg News said in February of 2016. A survey cited within the article reported that just 38% of students could accurately report how much student loan debt they have, and another survey from the Federal Reserve Bank of New York found that just 37% of students knew that student loans are next to impossible to discharge, even in personal bankruptcy.
With these statistics in mind, you probably want your college-bound high schoolers to be as informed as possible when it comes to the complex issue of student loans before they ever have to fill out FAFSA. To encourage your teens to tackle a tricky and oftentimes boring subject, offer a financial incentive for writing research papers on student loans. For example, you could offer them $10-20 for a 4-5 page report on Pell Grants.
Added bonus: offer to double the amount if they agree to put the money in a college savings account! This way, you’re not only helping your kids save for college but also teaching them how to research difficult financial topics on their own.
Personal Finance App = Prerequisite For Phone Payments (For teenagers)
Do you pay for your kids’ monthly phone bill, with no strings attached? If so, there’s an easy way to teach them how to earn benefits (such as texting and data privileges) while also teaching them more about personal finance. How? Require them to install and regularly use a personal finance app on their smartphone.
For example, Mint is a great budget app for beginners, and if your teen has a job then they could start tracking their income and expenses on a weekly basis. Alternatively, if your kid has their own credit card, they could use the Credit Karma app to track their credit history. Regardless of which app they download, it’s a simple requirement with a huge reward for them (not having to pay their own phone bill!).
No parent is perfect when it comes to the best lessons, but giving your kids the head start they need on financial literacy education from an early age is key to avoiding money management problems later in their lives. Start with the games I’ve listed above to make this otherwise dull and dry topic more fun and rewarding, and encourage your teens to follow personal finance blogs to further their education as they get older!
The trick to teaching kids about money is to find age-appropriate and fun ways to teach your kids about money. Do you have any other ideas that you’re using to help teach your children about money?
