Our friends at WalletHub have put together helpful information on how to achieve success in teaching your kids about finance. Odysseas Papadimitriou is CEO of the personal finance websites WalletHub and CardHub.
Financial literacy is no joke for U.S. families. Only Bosnia has a lower percentage of young people who know their financial A,B,C’s, according to global survey of parents conducted by VISA. It certainly doesn’t bode well for the future when the folks who overspent their way into a recession and have continued to rack up debt throughout the recovery have such a low opinion of their own offspring’s preparedness for financial independence.
But while financial literacy is clearly no laughing matter, it is overlooked far too often. Only 17 states require the topic in public high schools. Parents and teachers across the rest of the country often look to one another to fill the void, only to allow the subject to slip through the cracks – if it’s ever on their radar to begin with.
The burden, ultimately, is all of ours to share. We all certainly have a vested interest in the financial know-how of all of our fellow citizens, regardless of age. And while there has been some debate regarding the effectiveness of formal financial literacy programs, a new study from the education company HigherOne found that “students who received financial literacy education in high school scored significantly higher than their peers on financial knowledge questions and are significantly more responsible when it comes to money.”
Attitude and behavior, the study indicates, are just as important as knowledge of specific facts. That’s where well-informed parents can make the biggest impact. With that in mind, here are a few tips for grooming a financial whiz kid.
- Make Sure to Get a Nap In: A recent study from the University of Arizona not only found a direct link between napping and early cognitive development, but also showed that children who napped were better able to apply previous lessons learned to new situations than non-nappers. That is a crucial aspect of critical thinking and, by extension, financial literacy. The details may change, but problem solving is timeless.
- Make It Fun: The Trojan Horse technique works wonders when it comes to teaching kids. If you make something fun, they’ll engage with it and maybe even learn something along the way. In that vein, the assortment of money-related apps and games that are available can be a great way to introduce responsible financial values to young children.
- Lead By Example: Academic research has also shown a direct link between the spending habits of parents and those of their children. That should come as no surprise. Kids are notorious mimics and they study everything their parents do. But it does mean that one of the biggest favors you can do your kids is to be financially disciplined yourself. If you need some pointers, there are plenty of great resources online. You could even enroll in a Massive Open Online Course (MOOC) if you’re really gung-ho.
- Get Their Hands Dirty: People learn best when they can actually do things themselves. Mistakes are also an inevitable part of the process. As a result, it’s best to give your kids practice when the stakes are still low and while you can still oversee the learning process, offering pointers all the way.
The best approach is to provide your kids an allowance while requiring that they foot some of their own bills. You can gradually dispense the allowance in larger amounts and at longer intervals, while adding to the list of expenses your kids have to cover as well as introducing an assortment of financial products. We recommend starting with a prepaid card before moving to an all-cash allowance, a checking account and, ultimately, a student credit card.
- Focus on Tradeoffs: Responsible money management is all about managing trade-offs: risk vs. reward, more rewards vs. lower fees, higher salary vs. better experience – just to name a few. That means critical thinking and a reasonable outlook are the keys to financial security. So stoke your kids’ curiosity, teach them to never take things at face value, emphasize hoping for the best but planning for the worst, and they’ll be just fine.
At the end of the day, you’re already ahead of the curve with our youth and teen accounts Money Musketeers
programs to help your kids save and plan for the future.