Five Tips for Teaching Kids Financial Literacy
- Financial Education
- Frontwave Credit Union
School is back in session and kids are getting their fill of reading, writing and arithmetic. One thing they might not be learning in the classroom? Financial literacy — in other words, the skills and knowledge needed to make good decisions with money.
Think back to when you were in school. Did you learn how to balance your checking account? Read a credit report? Assess the long-term costs of taking on a car or home loan? These are important skills that not all students have the opportunity to learn. Fortunately, parents, grandparents and other loved ones can do a lot to teach them right at home! It’s never too early — or too late — to start teaching kids about money and finances.
Here are five tips to get started teaching your child financial literacy:
1. Make it fun.
Playing games that involve money and making good financial decisions is a great way to teach your child some of the fundamentals of financial literacy — and have a little family fun while you’re at it. For example:
Monopoly can help teach your child about budgeting and saving for purchases, as well as about investing (in real estate) and borrowing (taking out loans or mortgages).
The Game of Life can help your child learn about net worth (since the goal is to end the game with the most money in assets vs. liabilities), as well as about how various decisions (going to college, investing, consumer spending) can affect your long-term financial outcome.
There are lots of free online games available to help teach key financial topics as well. For example, sports lovers may enjoy Financial Football, a collaboration between Visa and the National Football League to teach teens and tweens money management skills via an engaging platform.
2. Turn birthday money into budgeting 101.
When your child receives money for his or her birthday, a holiday or graduation, or another important life event, you can use it as a great opportunity to talk about saving and budgeting. Ask your child what he or she would like to do with the money, and how he or she can achieve those goals. If your child wants to buy more than he or she has the money for, help him or her make a list of priorities based on needs vs. wants.
To help your child save up for larger purchases, consider opening a Frontwave Kids’ Savings or Teen Savings Account for him or her. These special savings accounts offer prizes and/or dividends to encourage good saving habits. If your child is a teenager, you may want to add on Teen Checking Account to help him or her learn the ins and outs of responsible use as you provide guidance as a joint owner on the account.
3. Talk openly about credit.
Not everyone likes talking about money, especially borrowing money. But discussing the use of credit with your child is a good way to help him or her learn about smart use. For example, if you’re financing a large purchase with a credit card or loan, explain to your child how you will pay a portion of the money back every month with interest. Talk about how paying more than the minimum due each month can help you save on interest over the long run.
You can also use media stories or personal experiences to talk to your child about the importance of using credit wisely and not taking on more debt than you can afford to pay off. For example, if you hear a news story about someone going through a bankruptcy, explain to your child what that means: it’s a legal process that allows people to seek relief from debts they can’t pay off.
Also explain that not paying off debts when they’re due can affect a person’s ability to borrow money in the future for a long time. That's because credit-related activity is recorded on a person's credit report, which banks and credit unions check when making decisions about who to lend to. Late payments, delinquencies and bankruptcy all negatively affect a person's credit report.
4. Give real world perspective.
Children, especially younger ones, often have trouble understanding the true value of money in “the real world.” To them, $1,000 may seem like a fortune — enough to buy everything they’d ever want! But as an adult, you know that’s not the case.
To help your child gain a better perspective, talk about how much money you spend to run your household. If you’re not comfortable sharing exact numbers, share percentages instead. For example, you might talk about how you spend 30% of your income on rent/mortgage, 10% on food, 15% on transportation, etc. This can help your child better understand that daily needs take up a big portion of the money you have available, leaving less than they might expect leftover for wants.
5. Teach by example.
Children learn a lot just by observing what the adults in their life do. This means you can help teach good money management skills through your everyday actions. For example, when you’re out shopping with your child, talk through how you decide what to buy. Explain how much money you have to spend and what your priorities are. Then talk about how you use that information to make decisions about picking one item over the other to stay within your budget. Repeat a similar process when paying household bills, balancing your checking account and taking care of other financial tasks.