Financial literacy: a vital skill for children

By Susan Taylor

If you have children in your life, you have probably thought a lot about how they will handle their finances as they grow.  Few schools help, as most teach little to nothing about personal finance.  How, then, are our children to learn about money matters?  From us, of course—which may be a daunting prospect for us, and possibly quite unfortunate for them.  

Many parents think they need to have all of their own money issues worked out before they can begin teaching any skills, but face it—if we wait until that point, our children will never learn a thing and may in fact never leave home!   

Financial advisors see parents and children deal with money issues in a remarkably wide range of ways. One technique seems to be silence: the “if we ignore it, it will go away” school of parenting. Some of our clients with the deepest sense of anxiety about money are those who were brought up in households where money was never discussed.

Talking about money with the children in your life doesn’t have to be painful. A North Carolina family put dollar amounts on a dart board and had a raucous dart competition to decide how much money to give away to a favorite cause. “All financial decisions should be this much fun,” the mother reported.

That she was including her children in the decision-making process was far more important than the technique.  In this one interaction they were learning about philanthropy, seeing how different gift amounts would impact the family budget, and learning how to talk and think about money.   

Some parents talk too much about money and give too many instructions, but the “blah-blah-blah” approach simply does not work.  I can tell my children that they need to save money, but if I pull my credit card out to answer every whim, it’s certain they will hear the credit card whipping around much more clearly than my words.  

Luckily for all of us flawed parents, good-enough modeling does not require perfection.  In fact, kids can learn through our mistakes.  A woman once told me that while browsing at an antique mall with her daughter, she made one of those spur-of-the-moment purchases we quickly regret.  Because not much money was involved, she would not have returned the old book had she been alone, but she was aware that her daughter was learning about money.  She pushed through the momentary embarrassment and returned the book to the store, redeeming the mistake by acknowledging and correcting it.

Other people’s choices can serve as examples of what you want your children to know.  When one friend’s son chose to attend the local community college for two years before transferring to a four-year college, I showed my children the difference that can make in the overall cost of college.  When another family’s child went to a prestigious university, our family talked about the scholarship that made that possible.

After about a dozen people we know well left a meeting held at our home one evening, our daughter said, “You do realize, don’t you, that we had the shabbiest car out there tonight?”  “Yes,” I responded, “and it was the only car out there that is paid for.”  She thought about that, grinned for a second, and has appreciated our car more ever since.

The best news I can share about teaching the children in your life about money is that you do not have to do it alone.  Along with the expertise of your friends, family and financial advisor, there are many print and on-line resources to help.  Two favorites are moonjar.com for small children and sharesavespend.com for everyone.

In my opinion, the single best book is Raising Financially Fit Kids, by Joline Godfrey.  Godfrey presents financial literacy as a set of 10 basic money skills, including saving, keeping track of money, spending wisely, investing, and entrepreneurship.  Lots of financial literacy books do the same. But Godfrey adds the fundamental money skills of philanthropy and–key for NI clients and friends–“how to use money to change the world.”  (Also see this interview with Godfrey.)

Nine-year-olds and 16-year-olds have different abilities to assimilate complex and abstract notions around money.  Godfrey lets the reader know what skills are appropriate for your child, and, best of all, gives specific ideas for things that we can do to teach each money skill.  

For example, if your target skill is learning to spend wisely, a child 5 to 8 years old can be given a set limit to spend when you visit a store and be allowed to decide how to allocate that money.  A 9- to 12-year-old can learn how to read product labels and dissect advertisements for misleading and mixed messages.  Your 13- to 15-year-old can research competitive prices for an upcoming family purchase, while my 16- to 18-year-old is comparing cell phone plans.  

Many of the specific ideas are simply a matter of including our children in age-appropriate pieces of our family’s financial life.  Our children need to count money, go to the bank, look at statements online, handle their own allowance, meet your financial advisor, and add up interest payments to see the cost of credit. Hands-on learning is the best kind of education for people of any age.

Money is such a pervasive force in the world our children face ahead of them.  Understanding money, from a solid values base, is vital preparation for launching out on their own.

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