The studies are clear – when kids receive financial education, it leads to better financial outcomes.
Not only is financial literacy correlated with financial well-being, but young people with financial education also have better credit scores, more consistent loan payments, higher net worths, and are less constrained by debt. They are more likely to attend college in part because they have a greater awareness of grants and low-cost loan options to help them pay for it. Financial education also increases the likelihood of budgeting, saving, and planning for retirement.
While the number of states requiring personal finance courses in high school is increasing, only 18 states have laws in the books today and only 8 of those have finished implementing their programs. For now, it seems, families are still the most likely providers of financial education. Here are tips and resources to make it easier (and maybe even fun!) to start acclimating your kids to the world of money and finance.
Start Early
Mistakes are a part of learning. Dr. Ashley LeBaron Black and Rachel Okamoto, financial therapists who study parent financial socialization, say that toddlers make $5 mistakes, 10-year-olds make $50 mistakes, 15-year-olds make $500 mistakes and 20-year-olds make $5,000 mistakes. It can be difficult to give kids true autonomy with financial decisions and that only gets harder as kids get older and the consequences of their mistakes get larger. Let's face it - biting your tongue over $5 is a lot easier than staying mum about $5,000. Starting with small stakes makes it less stressful for you and gives your kids the most opportunities for trial and error prior to adulthood.
Apply It: Use a Save, Spend, Give piggy bank to help kids consider how to use their money.
Modeling
It is no surprise that kids often imitate what they see, so modeling your own good financial behavior is a great way to inform your kids. Maybe just as important to note is that kids can’t model behavior that they don’t see. Even when you want to keep finances private, there are often things you can demonstrate to your kids about the way you shop, budget, save or give. They not only need to see what you are doing but how you are doing it.
Apply It: Have your kids sit with you while you clip coupons or bargain hunt.
Discussion
Open dialogue about money helps kids learn. Sharing your own good and bad experiences is one way of teaching. Another is to plan age-appropriate lessons. If you’re not a planner, spontaneous chats about money can be just as educational. Look for examples in day-to-day life to illustrate how you think about money or have a conversation about the money habits you see in TV shows or movies. The primary goal is to create a two-way conversation between you and your kids so they feel encouraged to ask questions and learn.
Apply It: Use the money from a Monopoly set to show your kids how much money comes in monthly, how much goes to bills, and how much is left over. Talk about what expenses come out of the leftover pot and how you make those decisions.
Experience
Giving kids an opportunity to practice good financial habits helps them internalize good behavior for adulthood. Rather than waiting until college, find ways for kids to earn money, pay for their own things, and use bank accounts and credit cards earlier on in life. Also, consider assigning age-appropriate financial responsibilities to your kids.
Apply It: Teach your child how to calculate the price per item or per ounce and have them help grocery shop for cheaper items.
Talk Yourself Through It
The reality is that many of us don’t feel comfortable, appropriate, or knowledgeable enough to talk about money with anyone, let alone our kids! If it feels taboo or risky to have these conversations, you may need to talk yourself through it before it feels feasible.
Keep in mind that you may not have all the answers and that is ok. Investigate questions together and consider it a learning experience that will help you and your child.
You may also be concerned that your child will disclose your information to others. The experts recommend sharing only what your child is mature enough to handle and simply asking and trusting them not to pass on those details to others.
Resources
If you are ready to engage with your kids about money, here are some additional resources you might find helpful.
Free and easy ways to teach kids about money starting at ages 2 and 3.
Free download of age-appropriate games, activities & learning materials.
The kids’ money app that builds smart habits for a lifetime.
Games, books, videos, and more to promote money-smart habits throughout childhood and young adulthood.
Board game
Book by New York Times Journalist Ron Lieber