As all parents know, financial responsibility is a hugely important life skill, one that’s crucial to future success. From balancing your checkbook to making sure you pay off bills on time, budgeting your money is indispensable to all functioning adults.
Let’s take a look at the case for why this subject should be taught in schools and some ideas for how you can help your child get a head start on this key ability.
Personal Finance, by the numbers
Unfortunately, many children aren’t being taught this crucial skill, at least not in class.
Though each school is different, and many do offer personal finance classes, it’s often not a requirement. In fact, as the Council for Economic Education found, only 17 states require students to take high school personal finance classes.
And if you’re a parent who wants to set your child up for future success, this is a troubling trend, to say the least. In a survey by Mastercard, 65% of the parents of college-bound students expressed concerns over their child’s ability to budget and manage finances. Unfortunately, it seems these parents have good reason to be worried: from 2012-2014, one survey found a sharp decline in the percentage of students reporting financially responsible behaviors, such as paying credit card bills on time, reviewing bills, and following budgets.
How to step in
Clearly, the will to learn is there. But rather than wait for their children to discover the value of personal finance months before they ship off to college and live on their own for the first time, parents should instead build up their children’s financial literacy as soon as they can.
Even elementary school students can, and should, learn budgeting. The key to teaching this important concept to younger children is to keep the lesson simple, short, and tangible. Try to stay away from abstract concepts like mortgages, loans, and bank payments, and instead break it down into simple ideas. Be sure to use lots of manipulatives (physical objects) and money, either real or imitation. It’s important to have something that can be touched, moved, and felt, as younger children haven’t yet developed the ability to imagine long numbers and ideas with their minds.
Saving, spending, and sharing
One great activity comes from Sesame Street, which instructs kids to put away some money for savings (so they can buy more expensive toys later), some money for spending now, and some for sharing. As you watch the video, note that the child drops money into jars, which helps him visualize and imagine which category the money is going into—again, another reminder that children learn best when they have objects to manipulate.
Sharing is another interesting category, although an entirely optional one. The money in this jar is set aside for donating to any cause that your child will choose, such as helping the homeless, assisting less-fortunate children, or perhaps even shelter pets. Whatever the charity may be, it’s important to build a foundation of generosity now, so that your child can nurture and build this spirit as time goes on.
When (and how) to teach investing
When your children can understand saving, spending, and sharing, they can move on to more complicated topics, like investing, which, in some ways, resembles long-term saving (albeit one where your savings can grow, thanks to interest rates). Research has found that the earliest time to introduce interest rates is around 9 or 10 years old, when children with a strong background in numbers can begin to understand more high-level, abstract concepts.
One interesting activity centers around teaching children about stocks. One mother allowed her three children to invest in one stock from a company that they had an emotional connection to: her son picked Apple, as he loved computers, whereas her two daughters picked Disney and Honeywell (the electronics maker who manufactured her thermometer).
Afterwards, the family spoke about the stocks at the dinner table, tracked market trends, and even put on an informal contest to see whose stock had the highest returns (at press time, it was the daughter who invested in Disney). Clearly, this activity wasn’t just a learning experience—it was also a fun, cute bonding activity that encouraged friendly competition and collaboration.
In the end, teaching your children about personal finance is important, and most of all, inexpensive. Creativity and cooperation is the key here: be it the $20 challenge, paying your child for chores (to reinforce the bond between work and pay), or letting them help with your family’s budgeting process, there are plenty of cheap, easy ways to help your child develop their understanding of money.