Navigating the financial landscape and making smart choices with one’s money is challenging. An April 2023 CNBC report discovered that less than half of Americans have an emergency savings fund. Financial issues are common for high earners, but through early financial literacy, you can preserve capital for generations.
One way to create financial freedom is by making stable investments. Perhaps shockingly, many Americans recognize this too, and an April 2023 Gallup poll indicated that 61% of the U.S. population owns stock. You can only make sustainable financial investments if you are financially literate. It isn’t possible to make good use of your money and have your money working for you.
As a parent, you want to ensure you are setting your children up for financial success, and ensuring that they are able to preserve capital for generations. Financial literacy is the first step to ensuring your future generations are protected and has the financial freedom you have helped create.
In this guide, we’ll discuss why it’s vital to discuss financial literacy with your children and how you can provide them with the skills and resources that they need to accomplish financial security.
Why Financial Literacy Is Important for Kids at Every Age
Developing good financial literacy is more complicated than one might think. According to a 2022 Ipsos poll, the average American is moderately financially literate. Still, one out of four individuals rated themselves as such need to be more confident in their abilities to make intelligent financial decisions.
Education plays an essential role in being smart about one’s finances. This same poll by Ipsos demonstrated that college-level Americans were considerably more financially literate than their peers. Still, it isn’t as clear where this knowledge comes from.
A report by CEE demonstrates that access to financial education is highly varied depending on where you live. Many schools don’t require students to take economics classes as part of their high school graduation requirements. As a parent, you play an essential role in educating your children about how to manage their money because if you don’t teach them, it’s possible that no one will.
Educating kids about money early on means that your child has time to learn about their strengths and weaknesses in investing and money management when the stakes might be lower. After all, taking several weeks longer to save up for a favorite toy is much different than missing a rent payment due to unwise financial decisions.
It’s also important to recognize that many worthwhile financial decisions can take quite a bit of time. For instance, early retirement requires years of preparation and good choices. If you want your child to manage their money well by the time high school graduation rolls around, they need to build on skills they learned when they were much younger.
Educating your children about financial literacy doesn’t have to be challenging. Starting with some basic concepts can go a long way.
Getting Started With Financial Literacy Education For Kids
Introducing your child to general financial literacy concepts is easier than you think. You can also take action to set your children on a solid financial footing by the time they come of age. Remember that taking things slowly and incorporating fun activities into your child’s financial education can ensure that suitable monetary habitats develop quickly. You can also take action to set your children on a solid financial footing by the time they come of age.
Emphasize the Value of Money and What it Means
What money is and how to use it may be challenging to grasp for some kids. Start by teaching your child basic math skills and then demonstrate how money can be used to purchase items they want or need by giving them small amounts to spend on their own. Use physical coins and bills to start with, instead of bank accounts and cards, so your child has the tangible experience of dealing with money.
Over time, you and your child can discuss what purchases are worthwhile – and which may not be. You can then work your way up to giving your child an allowance and having them make more financial decisions themselves.
Tell Your Children Why Financial Savings Matters
Remember that financial savings and their importance have to do with the concept of delayed gratification, a concept children understand from an early age. Start by helping your child practice saving by making games out of how much money they can save, and then have them purchase something they enjoy.
Invest Financially on Behalf of Your Children
As a parent, you aren’t just in charge of your child’s financial literacy; you also have significant responsibility for their financial future. While your child is learning to use money wisely, you can also start putting money away for them and yourself by investing and generating passive income.
How to Explain Investing Money to Your Children
If you are overwhelmed by the concept of teaching your children how to invest, you aren’t alone. It’s important to remember that you don’t have to provide an in-depth education in stocks and bonds for your toddler.
When explaining investing money to your children, start from the concept of why a savings account is essential. You can then demonstrate how they can earn money by “letting it sit” and investing instead of spending it. As your child grows older, you can discuss the different types of investments and why it is vital to have a diverse portfolio.
How to Talk to Kids About Finances at Every Age
It’s never too early to start teaching your children financial literacy. Here are different age-appropriate financial lessons for each of your children.
Talking to Toddlers About Finances
While very young children may not be able to understand abstract money concepts early on, teaching them basic math skills at a young age can go a long way. Have your children practice making change and making purchases with physical money to demonstrate how money has value. You can also help your child start saving money for small purchases by giving them a piggy bank, so they can see how much money they have saved over time.
Talking to Adolescents About Finances
Research suggests that children form many of their financial habits around the age of eight. You can introduce the concept of earning money by having your child complete chores or tasks in exchange for an allowance. If you haven’t already, you should also open a bank account for your child. Be sure to play fun games to make managing their money less intimidating.
This age is also a good time for you to start helping your child save for a large purchase they want – and also have them recognize what happens if they don’t choose to save. This is also an excellent time to teach your child how to budget.
Talking to Teenagers About Finances
By the time your child is in middle school, you can introduce concepts related to investing, such as how interest is compounded. If they are old enough, your child can also begin searching for a job or start their own small business to earn money by themselves.
By this point, your child should have access to their bank account and regularly use their debit card. Many banks offer the option to keep this account linked to your own so that you can track your child’s spending. Once your child has demonstrated enough financial responsibility, you can start to help them build credit, as it is possible to be an authorized credit card user as young as thirteen.
At this point, be prepared to talk to your child about risky financial decisions – and recognize that they may make some financial mistakes. Emphasize the importance of creating a healthy financial mindset as they grow older.
Talking to Young Adults About Finances
As your child officially ages, it’s time to start handing over the reins to their financial future. Some of the ways that you can help your child step into their own as an adult include:
- Discuss how the financial preparations that you have made for their future, including investments in their name and college funds, can and should be used
- Help them make intelligent choices about their career choices and college, especially when related to taking out student loans.
- Have your child pick out some of their investments, such as stocks, by themselves;
- Guide them through the process of opening their first credit card
- Have your child join an investment club
- Set your child up with a financial advisor
Resources That Can Help Your Family Gain Wealth at Any Age
- Are you looking for ideas on teaching your child financial literacy while increasing your knowledge? Check out these resources:
- Biz Kids – An Emmy award-winning production by the creators of Bill Nye the Science Guy, this show aims to educate and empower young entrepreneurs through dynamic lessons, interviews with young businesspeople, and sketch comedy.
- Consumer Financial Protection Bureau – Educate yourself and your children about financial scams and good money management practices through this site that is aimed to protect
- Federal Student Aid – The go-to resource for understanding and managing college loans and grants provided by the federal government.
- Hit the Road Game by My Credit Union – Learn about budgeting appropriately through this fun family road trip game.
- Investopedia – If you are looking to expand your own financial knowledge and learn more about the economic landscape, this resource is one of the most trusted on the web.
- Investor.gov – Find a financial advisor and practice your own financial planning with this website, managed by the U.S. Securities and Exchange Commission.
- Khan Academy – Personal Finance – Looking to get back to the financial basics? This series of webinars is your Personal Finance 101 class.
- Loan Calculator by Bank Rate – Trying to figure out how to pay off a loan but need clarification on exactly how much you owe or how long it will take to pay it off? This resource has you covered.
- Mint Budget App – Keep track of personal finances and spending through this highly customizable budgeting service.
- The Motley Fool – This website aims to provide investment advice for everyone, no matter what your education or experience.
- NerdWallet – Looking to make a big financial investment or decision but unsure of how to make the right choice? This site allows you to compare products and services to ensure you get the best deal.
- Orange Owl Academy – Kids can learn about smart investing and money management through this fifteen minutes a week online course.
- Planet Money – Podcasts and articles about money, finances, and the economy are regularly updated by NPR.
- Ted Talks – Finance Edition – A great overview of the power of money; these talks discuss both personal finance mindsets, career decisions, and unique perspectives on what money can and cannot do.
- U.S. Mint for Kids – Teach your children about the history of money and basic math and money skills with the games and resources on this site.
- You Need a Budget – Gain control of your finances by tracking spending through this highly detailed budget app that teaches you how to build savings and get ahead.
Teaching your children about finances, investing, and proper money management can be daunting if you have struggled to properly manage your money. Luckily, there are many resources and ways to educate yourself and your children about financial literacy. Most importantly, normalizing conversations about money early on allows your children to understand the importance of money and demystify many financial concepts early on. The key is emphasizing that money doesn’t have to be scary or intimidating – instead, emphasize the importance of making your money work for you.