The do’s and don’ts of managing money are played out in our everyday lives, not to mention our news channels and social feeds. That’s why, when it comes to teaching children about financial literacy, it’s never too early. In fact, research through the University of Cambridge estimates that habits around money are set by age seven.
Most school districts now offer some level of financial literacy to students, even from elementary school. However, for most students, the bulk of their financial instruction still comes from parents and guardians. According to a 2023 survey by Chime, 30% of Gen-Zers and Millennials are more likely to go to their parents for financial guidance over friends, significant others, or social media platforms. Of this same group, 18% trusted the lessons they learned, while 17% reported learning what not to do from their families.
When it comes to your children, how proficient is their financial literacy? If you’re uncertain about the answer, don’t worry! There’s still time to impart helpful guidance, no matter how quickly they might be growing up. So don’t hesitate to keep learning about these key topics yourself and implement a few of the following strategies in your family.
The Benefits of Early Financial Literacy Education
What is financial literacy? To put it simply, this term refers to the knowledge and skills needed to make informed decisions about money. This includes earning, budgeting, spending, saving, investing, and borrowing.
One of the biggest benefits of teaching financial literacy early is that it sets children up on a course toward sustainable financial stability. By learning about money management at a young age, children are more likely to develop healthy financial habits that will stay with them throughout their lives.
Financial literacy education also helps children develop critical thinking skills. By learning how to budget and make financial decisions, children are more likely to think carefully about the potential consequences of their choices, balance their needs and wants, and avoid equating money with happiness, acceptance, or entertainment. This can help them develop into responsible and independent adults.
Additionally, speaking openly about money can also help reduce financial stress in households. Many adults struggle with financial management because they were never taught these skills as children, reinforcing gaps in earning potential across gender, race, and class background. By equipping children with useful knowledge and skills, parents can continue to strengthen their own habits and feel confident that their children are prepared for the future.
How to Teach Financial Literacy at All Stages
When it comes to teaching financial literacy, it is helpful to make it fun and engaging so that the topics have a positive association. Here are some tips parents can implement in small and big ways:
1. Use everyday examples: Children learn best when they can see how the concepts they are learning apply to their own lives. Use real-life experiences such as depositing a paycheck, comparison shopping while buying groceries, or even trading in for a new family car to illustrate principles of spending, budgeting, and borrowing.
2. Bring games to life: Financial literacy education can be fun! There are many apps and online resources that add a safe element of play to money management. You can also use a family night in to play games that teach the value of managing resources, like Life or Monopoly. Role-playing opportunities will engage different ways of thinking, evaluate the results of their efforts, and help them retain the information better.
3. Encourage budgeting and saving: Long before your teenager is able to begin seeking part-time work, there are myriad ways to help them learn about how to budget what they earn. Many parents set up an allowance system or contribute a percentage toward a goal amount for extra chores children perform. Investopedia highlights kid-friendly apps such as BusyKid and Greenlight which “let you assign a dollar amount to each task and send the funds to their account with a few quick taps on your phone.” This helps connect money collected to work performed and put the value of a purchase in the context of earning potential.
4. Open a bank account: If your young ones are unaware of how banks and banking products can work for them, financial institutions will remain an intimidating place. Demystify the experience by demonstrating how your online banking or mobile app helps manage your money, and when you believe they’re ready, help them start their first account! Many institutions permit minors at or below the age of 13 to open a joint account with their parent or guardian, which allows them hands-on practice with money management and, when qualified, a debit card. This way, at 18, they’ll feel more confident when choosing where and how to open an individual account.
5. Simulate investing: Many financial literacy courses include something like the stock market game popularized in Utah: “a 10-week simulation of Wall Street trading that provides a framework for students to learn about the U.S. economy and financial markets.
“During the game, students invest a hypothetical $100,000 in common stocks and diversified investment funds on the major exchanges. Teams are ranked based on the ending value of their investment portfolios.”
This is an easy challenge to replicate at home and a useful way to demystify different methods of investing.
6. Learn together: Children learn by observing their parents and caregivers. Unfortunately, that includes any bad habits you may have established along the way. So, set a good example by speaking openly about and practicing good financial habits yourself. Use regular conversations about money to establish accountability and break down taboos about topics that will serve your children’s long-term financial wellbeing.
Final Considerations
Teaching financial literacy to children can be crucial for their success and well-being in the future–all without losing the fun! Parents and schools play a vital role in this process, and by working together, we can all help ensure that the next generation is financially literate and prepared to handle their finances responsibly.
If all of this sounds overwhelming, not to worry! There are lots of resources to help you kickstart stronger financial literacy for you and for them. The key thing is to start early. Make it accessible and engaging so that these lessons pay dividends for your family.
As Warren Buffet famously said, “The best investment you can make is in yourself.” By investing in our children’s financial literacy education, and by adding gratitude and generosity to the conversation, we are not only setting them up for personal success but also contributing to the overall well-being of our society. So let’s start teaching our children about money management today and watch them thrive in the future.
