Invest in Financial Literacy for the Next Generation
Knowledge is power. When you know better, then you do better, right? That concept is one that generally makes sense for most, but one that runs amuck when it comes to finances. According to debt.org, “The average American has $90,460 in debt, according to a 2021 CNBC report. That included all types of consumer debt products, from credit cards to personal loans, mortgages, and student debt.” In order to make money in the U.S., the goal is to spend, spend, and spend. But is this really the solution? Capitalism and consumerism would definitely agree, but most financial advisors would explain how budgeting, saving, and investing could expand your finances in exponential ways. However, the time for some of you to change your financial behaviors may be long overdue or hard to change, but it may not be too late for your children or grandchildren.
How to Begin a Conversation about Money?
Financial literacy cannot begin if you do not talk about it with your family. According to a T. Rowe Price study, 36% of parents are “very” or “extremely” reluctant to discuss finances with their children, and another 26% say they are “somewhat” reluctant. Yet, children will still learn from you if you want them to or not. They will never understand what ups and downs may come from the experience if they are not privy to them. Believe it or not, children are more observant and receptive than most parents give them credit for these days.
Research, including influential work by David Whitebread and Sue Bingham of the University of Cambridge, suggests that many of our financial habits are set by age 7. Therefore, at the age of 7, your child can understand most concepts of spending, saving, and giving that you can teach them at home. Even when the school may or may not be teaching financial literacy to your child in elementary, middle, or high school, you are their first line of education and should instill basic skills so they can have some financial success later in their adult life.
If you’re thinking of ways to introduce financial literacy to your children, we have a few tips.
Model Good Financial Behavior
Let your children see you in action making good, sound financial decisions on a daily or weekly basis so they get a good idea of what it means to be responsible with money. Explain to them why and how you are making these decisions and what it may mean for the household finances for the week/month and if it may impact something else.
Use Coupons at the Store
Show your children the concept of saving money. Let them get involved by cutting out coupons or if they are digital (on the cell phone), then let your children give coupons to retailers at the store at checkout to see how much was saved. If the goal was to save a certain amount, then see if that goal was reached and so forth. Make it an adventure or fun event in the process. Saving money can be fun with children.
Open a Kid-Friendly Bank Account
Letting your child or teenager appreciate the value of money and handle the complexity of banking will show them how to be financially-savvy. One way to do that is to set up kid-friendly bank-accounts. Some banks allow children as young as 6-years-old with a parent’s co-signature and permission to have a debit-card to teach money management. Other banks allow teenage debit-card programs for 13–17-year-olds.
Use Money Jars
This idea is simple but allows your children to manage their money on their own. So when your child receives money, from an allowance, special holidays, or birthdays, then they have three money jars: one for spending, a second for saving, and a third for charity/giving. By having this type of system, your child develops a system of budgeting, which becomes helpful as they grow into an adult.
Investing in financial literacy for the next generation is not only a sound and reasonable thing to do for your children, but it is also good for the economy which is in a debt crisis right now. Many of us do not have the tools of financial literacy to actually do better for our families but we’re hoping by utilizing these tips and being intentional about financial conversations, we can turn things around for ourselves and our communities.