Children are taught that money does not grow on trees, but sadly, financial literacy ends here, said Nicole Spector of NBC News Better, a life tips website. When it comes to finances, ignorance is not bliss, and not teaching your kids the value of money may hurt them in the future. Sam X Renick, co-creator of Sammy Ribbbit, agreed, saying, “Without a working knowledge of money, it is extraordinarily difficult to do well in life."
Kids are eager to learn from their parents and even if you don’t teach them about money, they will find ways to learn about personal finances. Hence, it is important to instill in your children a gift of financial literacy to help shape their values and perspectives on money.
Surveys About Money and Finances (2019)
Edelman Intelligence, a global research and analytics consultancy, found that parents would prefer talking about finances with their children (76%) rather than sex (24%). They would also prefer to talk about money than waking up early to take their children to an appointment (54% versus 46%) and putting a tired toddler to bed (55% versus 45%). However, only 28% are currently talking to their kids about finances.
14% of US residents had the “money talk” when they were less than nine years old (versus 15% of Washington residents), 34% had the talk when they were between 10-17 years (versus 36%), and 9% had a conversation about money when they were above 18 and above (versus 5%). When asked about what they think keeps parents from speaking to their children about finances, 82% said fear-related reasons.
When asked what prevents them from talking to their children about money, 42% admitted that they themselves are afraid of talking about it to their kids. With regard to personal finances, 66% first learn about it from their family members (versus 45% of those who wished they learned about it from their family). On the other hand, 29% first learned about personal finances from financial professionals (versus 44%).
71% of parents believed that financial professionals are the best resource for children to learn from (versus 70% of non-parents). Other sources for kids to learn about personal finances were parents (75% of parents versus 66% of non-parents) and teachers (37% versus 43%). 85% of Washington residents have a checking account, while 72% have a savings account (versus 77% of and 59% of US residents). Insurance firm Policy Genius found in their survey that parents have not talked about the following financial concepts: budgeting (41.1%), debt (30.7%), charity (26%), taxes (22.5%), credit scores (16.3%), and insurance (16.2%). 37.3% of parents have not talked about the abovementioned concepts.
When asked what accounts the parents have consigned for their child, they answered savings account (32%), checking account (17%), stocks, bonds, or other investments (10%), credit card (7%), and trust (6%). The insurance company’s survey also revealed that parents give their kids an allowance, with 34% giving between $1 to $9 a week and 25% giving $10 to $19 a week. Parents also give between $20 to $49 (20%), $50 to $99 (8%), and $100 or more a week (13%) to their children.
How to Instill Financial Literacy in Your Kids?
1. Be A Good Example
Share something about financial literacy. Don’t be afraid to have the “money talk,” stated Rachel Cruze of East Idaho News, a news website. If your household is experiencing job loss or in a tight spot, be open about conversing about how your lifestyle may be different now than before. Emphasize family values. You can tell your child that your family avoids debt to highlight the importance of reducing expenditure. If you are serious about avoiding or getting out of debt, set it as an expectation so that your child will not choose the priciest cereal available in the store.
2. Start At An Early Age
Pennies are not enough. Introduce your child to coins and cash and explain how money is used. Show them how money works by letting them see you purchase goods with cash. Rachel Cruze, a personal finance expert and the co-author of “Smart Money Smart Kids: Raising the Next Generation to Win with Money,” said, “When you’re teaching your kids about money, it’s important to teach them where it comes from. Money does not just come from mom and dad’s wallet.”
3. Create Opportunities to Earn Money
Consider requiring your kids to do certain tasks for their allowance. Tim Sheehan, co-founder and CEO of Greenlight and Chase Peckham, director of community outreach for the San Diego Financial Literacy Center, said there are some chores for children have to accomplish without pay because they are expected to help out around the house. But if they insist on getting paid, they have to do a different set of tasks.
4. Help Them Learn the Value of Giving, Saving, and Spending
Cruze said giving is one of the most important of all three categories as you are teaching them to help other people at a tender age. For the latter two, encourage your little one to save an amount of money in their savings account and some for spending each time they get paid.
Remember, once money is gone, it’s gone! Cruze added, “And yes, your kids will make mistakes, but it’s better that they make those mistakes under the safety of your roof.” You can also encourage them to have one piggy bank for giving, saving, and spending, suggested Logan Allec, CPA and founder of the personal finance site Money Done Right. Once your child receives their allowance, payment for completing a task, birthday money, and more, tell them to split the cash between all three piggy banks.
This will help them choose how they split the money they receive and what they do with it. Moreover, the exercise provides you with an opportunity to open conversations about money management. Allec stated, “Talk with them about both what they will do with their money as well as how they could have split their money up differently if an appropriate situation arises.”
Parents should teach their kids about spending on their needs and wants. Emphasize that money is not necessarily used for purchasing wants. It is also essential to teach kids how much they have spent on things over the last month or week. Overall, financial literacy will help them make more well-informed decisions about their finances.