Teaching Your Kids About The Importance of Financial Literacy Has Never Been More Needed
We, as parents are always teaching our children life-long lessons. It’s what parents do to help ensure that our kids grow up to be the best version of themselves that they can be. But interestingly, most parents aren’t teaching their kids, substantively, about money, saving, interest, debt, investing, and our kids are not getting comprehensive financial education in our school systems.
The fact is that financial literacy (or lack thereof) can make or break a child’s future no matter how intelligent they are or how many opportunities they have or even how well educated they are. If they don’t have a solid understanding of how to handle their finances and how to grow their wealth, they will struggle – today more than ever.
The Miliken Institute conducted a study on financial literacy in the United States, and the findings are alarming. The study reveals a substantial and widening disparity in even the most basic of financial concepts among sociodemographic groups. That lack of financial literacy is more pronounced along certain socioeconomic, racial, and gender lines.
The study also found that because our institutions are not providing this much-needed financial education, and kids are not learning any serious personal financial literacy at home, that this generation of young people will have far more financial struggles than their parents and grandparents did.
Where Do We Stand Financially in the World?
Why this is even more troubling is because Americans, compared to other developed countries in Europe and Canada, are tasked with many more financial decisions, such as college education savings and paying for health insurance and virtually all retirement investment decisions and savings.
Additionally, because Americans have a weaker social safety net, their financial decisions can pose potentially disastrous outcomes given the lack of financial literacy so many have.
This deficit in fundamental financial awareness coupled with a withering of our social safety nets will have an even greater impact on our kids like no generation before us in modern history.
Because most children are already formulating beliefs about money at a young age – by the age of 7 – it is imperative that we engage with our children at an early age about personal finance, how to budget, how to implement healthy spending habits, the importance of savings and savings goals, and how to invest and grow their money.
The positive values and teachings that we instill around money today can mean the difference in their prosperity and financial health for the rest of their lives. We want them to have the resources to take care of themselves and their families, to know how to build wealth and how to utilize that wealth and prosperity to give back and make positive impacts in the world around them as they move through their lives.
Why Teaching Our Children Financial Literacy is Imperative
But first, if you need further convincing that the level of financial literacy is woefully inadequate in the United States, here are some staggering statistics that underscore the very serious lack of financial awareness among Americans:
- According to the Federal Reserve Report on Economic Well-Being of U.S. Households, only 36% of adults believe that their retirement is on track. Of adults over 60, only 45% believe their retirement goals are on track.
- One-quarter of adults have no retirement savings or pension whatsoever
- Six in 10 non-retirees who hold self-directed retirement accounts (401(K) or IRA) have little or no comfort in managing their own investments
- The average Social Security payment is $1657 per month.
- A quarter of retirees receive 90% or more of their income from Social Security
- The average pension plan pays out an average of just $10,788 per year.
- Only 37% of the active workforce are participating in a 401K to help them with retirement.
- The average monthly cost of an assisted living facility runs about $4300 a month.
- Roughly half of all private-sector employers offer no retirement plans at all.
And the list goes on. We are in a crisis in this country as it pertains to financial literacy, and it is projected to only get worse for our children.
Ways We Can Safeguard Our Children’s Financial Futures
We have the ability to change the possibility of our children ever having to struggle with money, and here are some key concepts, strategies, and tools that can help you get started in strengthening the trajectory of your family’s financial future.
The good news is that these teaching moments can be fun for both you and them and have a lasting impression for a lifetime on how they view money.
Instill a Strong Work Ethic
Helping children understand that money doesn’t just “grow on trees”, as my mother used to say, but is earned is an important first step. As soon as a child is able to understand basic concepts, it is important that parents start incorporating teachable moments by providing opportunities for them to earn money and to see the value of money in exchange for their efforts. Their ability to start to earn their own money provides important lessons for both younger kids and older children alike.
Establish a weekly allowance in exchange for a list of chores. Allow them to earn more if they do more, and likewise deduct from their allowance when they don’t complete their chores so that they have a healthy respect for reciprocal obligations.
If they run out of money before their next allowance and are wanting “an advance”, be sure to avoid giving them extra money. Avoiding giving your child money on demand when they run out of their allowance teaches kids about financial goals and good money habits and how there are consequences to both good behavior and bad choices as it pertains to financial habits.
The fact is that in the real world when they run out of money they are out of money, so we may as well give our kids a healthy head start on what to expect so that we can teach them how to be responsible adults.
Older teens of course should be encouraged to take on a part-time job to earn money that can be put toward larger financial goals such as saving for their higher education.
Instill Healthy Spending Habits
While a good healthy work ethic is imperative in achieving strong financial values, teaching your children good habits on how to spend wisely and budget their money is equally important.
Explain to your children how to track their spending and help them to determine a weekly and monthly budget. Discuss credit card debt with them and the consequences that high debt can create for them.
Involve your children in your household finances from your income to your expenses. Help them to understand that the money that is earned within the household is not limitless and that spending habits and budgeting allow for certain perks like a fun vacation or new clothes or a new electronic device.
A great resource to help teach your children about financial responsibility is the book, Rich Kid, Smart Kid by Robert Kyosaki. This is a step-by-step handbook for parents that explains how to teach children financial concepts, the fundamental principles of finance, and money management tools that introduce a variety of skills that help kids understand the importance of financial planning in their lives.
Instill Good Saving Habits
By teaching your children to earn and save, and as a child saves for say a new toy or various video games or a cool gadget, you are helping them understand the importance of delayed gratification.
Give your child a piggy bank, or if old enough have them open a bank account and a savings account. Ideally, though you will want to teach them about compounded interest. You can do this through a parental controlled prepaid debit card such as Greenlight Debit Card.
Parents can use the Greenlight prepaid debit card to transfer money to their children and this allows you as the parent to determine an interest rate (that you pay) to your child through the card. This can create valuable teaching moments around interest, compounding, and the value of saving.
Albert Einstein called compounded interest the eighth wonder of the world. Einstein was a big believer in compounded interest and went on to profess, rightfully so, “He who understands it, earns it; he who doesn’t pays it.”
Additionally, with the Greenlight prepaid debit card, you can control the vendors by which your child can spend their money and have any “non-approved” vendors be declined if a transaction is attempted.
Teach Your Kids About Investing
While instilling good spending and saving habits is important, you can show your children how their money can work for them; this is what the wealthiest among us have been teaching their children for ages.
The poor and middle-class work for money. The rich have money work for them. – Robert Kyosaki
You could teach your children about investing by having them invest alongside you with your investments. You could also open a custodial account for your kids, have them research investments with you and help them to understand the intricacies of investing.
You can also use a tool to help your children learn about investing with the app Greenlight Max, the same company mentioned earlier. This app allows kids to buy fractional shares of their favorite companies in the stock market, they can invest as little or as much money as they wish, but they can also invest for as little as $1 and there are no trading fees. Best of all, parents approve every trade right from the app.
We are big believers here at PCRP Group in teaching children how to invest in real estate. As soon as you feel your child is able to comprehend financial concepts about investing, then a great book we recommend is Rich Dad, Poor Dad by Rober Kyosaki. In his book, he explains why it’s so important to be either a business owner or investor versus a self-employed individual or an employee and there are many other important lessons as well in the book.
Personally, I know many people whose mindsets were changed about money, finances, and investing after reading just this one book.
Teach Your Kids How to Give Back
You can get creative with your kids by discussing various non-profits and charities that they may be interested in donating a portion of their earnings. This helps to reinforce the idea that they have a responsibility to their community.
Your kids can decide if they want to give time or money or both, but let them decide and be a part of the process.
The Greenlight Debit Card has a feature that will allow them to automatically allocate a predetermined amount or a percentage into a “giving” account.
The bottom line is that kids won’t likely learn financial literacy or necessarily find the need to give back to their community unless parents teach them the importance of these valuable lessons. These money lessons will help solidify their financial security into adult life, and there is no better time to start teaching them than right now.
Resources To Help You Teach Your Children
So, let’s take a look at some resources that offer helpful tips and effective ways to help you start implementing strategies that will help to propel your family’s financial literacy forward.
The Cashflow Game for Kids designed by Robert Kyosaki is one of the best ways to teach both young kids and older kids about financial independence.
Monopoly is a great way to start teaching your kids about real estate investing and passive income.
Activities and books for younger children ages 7 and under such as Sammy Rabbit School of Money can teach young children how to spend and give wisely as well as how to earn and save.
Young Investors Society has a student-run and produced podcast called GenZnomics that is a fun and interactive way of teaching financial literacy concepts, discussing recent market events, and interviewing industry leaders.
Million Bazillion is a podcast about money for kids and their families from Marketplace in collaboration with Brains On!
Also, explore if your child’s school has any investment or finance clubs they could join to help them learn more about money and investing with their peers.
Money Plan by Monica Eaton and Arthur’s Funny Money by Lillian Hoban are good books for ages 4-7 to start the conversation about money with your children.
Finance 101 for Kids; Money Lessons Children Cannot Afford to Miss by Walter Andal is a best seller for kids ages 8-12 to help them learn responsibility around money.
Rethink Money for Children & Teens by Paul O’Mahony and his website FUNancial Freedom can help both younger kids and teens learn money management fundamentals.
Ready to Learn More?
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