Some students heading back to school this fall will see at least a bit of their classroom time devoted to personal finance, but that doesn’t mean the lessons should stop there.
The good news is that more and more states are beginning to require that personal finance be taught in the classroom, but that may not be enough. Some experts say financial literacy is something that should be taught early and often.
A parent’s goal should be to
help children learn the value of
a dollar—before they grapple
with more complex financial
issues later in life.
More children need access to financial literacy programs across the board, according to Laura Levine, president and CEO of the Jump$tart Coalition for Personal Financial Literacy, a non-profit group promoting financial education for children of all ages.
"We have a lot of work to do in terms of making sure that all kids in the country are getting financial education at multiple points" during their school years, Levine said.
Fortunately, there are ways to improve children's financial literacy outside the classroom. For parents looking to guide their kids toward wise money management at an early age, here are six tips to consider:
Discuss what money is and how spending works. Discussions on financial literacy often revolve around saving and investing, but for very young children, it makes sense to start with a simpler concept: what is money and what can you do with it? And that can lead to important lessons about spending.
Levine said that when her own son was 4 years old, she would give him a dollar and take him to a store to pick out a snack. There, the boy learned what he could afford to buy for a dollar and what was too pricey.
This sort of lesson is particularly important today, when so many purchases are made online or with a credit card. In fact, only 25.6 percent of financial transactions take place in cash these days, according to a 2014 study by the Federal Reserve Bank of Boston.
"Our kids are growing up in an electronic world and when cash underlies electronic transaction, it can be hard for them to understand," Levine said. A parent’s goal should be to help their children learn the value of a dollar and be conscious of money in ways that will help them as they grapple with more complex financial issues later in life.
Set a savings goal. While adults save money for retirement or their children's college tuition, for young kids, it may make more sense to set a short-term savings goals. You can explain to your child, for instance, that while they could spend their birthday money or allowance on a small toy, if they save their cash for a few weeks or months instead, they could later afford a larger toy.
"When they go to buy the toy, the light goes on," Levine said. "They say, 'I get it. I sacrificed and it was worth it.'"
Urging young children to set aside money could help them to develop a savings habit that persists into adulthood, when retirement goals replace toy desires.
"We teach our children to brush their teeth every day but we don't expect them, at a toddler age, to understand all aspects of dental hygiene. We just want them to get into this good habit," Levine explained. "With money, it can be the same thing."
Determine how savings should be stored. Whether it's a piggy bank or just a plain jar, giving young children a special container in which to store their savings is another way to help them develop a strong financial footing.
"Many lessons are most effective if they are relevant and immediate," Levine said. "What a piggy bank or a savings jar does is when you get that birthday money, that money doesn't go in your pocket — it is put in something that is labeled 'savings.' You've immediately made that mental commitment."
Older children may benefit from graduating from piggy banks to full-fledged bank or credit union accounts.
Visit a financial institution with your child. Assuming your child is comfortable with storing savings at a bank or credit union, Levine says it's worth visiting the institution in person to open a savings account instead of doing it online. On such a "field trip," a child can look around and gain a better understanding of what a bank or credit union is.
It's also a good idea to explain to children that their money that the bank or credit union is simply storing their funds, not taking them away for good.
"We want to teach children to use financial institutions as opposed to the equivalent of putting money under your mattress," Levine said.
Give them an opportunity to budget their cash. If you give your child a regular allowance, encourage them to be careful not to run out of cash before the next allowance day comes along. If you take a vacation with your child, consider giving them a fixed amount of money for small purchases such as souvenirs and snacks for the duration of the trip.
If you don't have much to set aside for a child's allowance or vacation allocation, don't fret.
"The important part isn't how much money you give—it's how to teach your child to manage it, to make it last," Levine said.
Pass on your values. Some parents may feel they have little in the way of financial wisdom to share with their children, but you can always pass on your values, Levine said.
Values, of course, can vary from family to family. Perhaps you want to emphasize the importance of philanthropy, or teach your children the benefits of frugality. And it’s okay to talk about some of the less than perfect financial decisions you might have made along the way. As in so many other contexts, children notice if a parent says one thing (save!) but does another (like spending frivolously).
"Value systems are what families can bring to the whole effort," Levine said, "that really can't be replaced in school."
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