Financial literacy is not just money management, but the ability to confidently take on and solve difficult financial challenges. Adults are faced with these challenges every day and if not equipped with the proper training may result in making poor financial decisions. Unfortunately, most adults didn’t learn good money management skills or general financial literacy in school and are sent out into the world with very limited knowledge on the topic.
We have all heard somebody say, “I don’t use anything I learned in school”. Don’t get me wrong, I’m glad that I know who was involved in the Battle of Waterloo, but I really wish I knew how to balance a checkbook. Until financial literacy is made mandatory curriculum in schools, which it should be...immediately, the daunting task of teaching “money” to our children will continue to fall on parents’ shoulders.
One doesn’t have to be a financial literacy wizard to teach good money management, they simply must set up the platform for communication and provide the resources necessary to move the conversations along. Kids will surprise you with how much they can absorb and how fast they learn.
Parents should not feel as if they don’t possess the skills to start these conversations though. Real-world experience and trial and error can be passed on to kids at a young age with open and honest conversation. The idea of discussing money with kids can be uncomfortable, but there are steps that can be taken to make it an enjoyable and positive experience.
1. Talk about Money
Talking about money is one of the best things you can do for yourself and your kids. Money management is important and can be made fun when it is in open and honest conversation. Remember, money isn’t a dirty word.
2. Let Kids Experiment
One effective way to help kids learn how to make budgets is to give them the chance to make mistakes on their own. A small allowance each week is the perfect incentive for children to learn how to budget. Do they want to blow this week's money on candy and a cheap toy, or save up a few weeks to get something they really want? Of course, some children will still be impulsive and want to spend their funds right away, but better they learn to make mistakes with $10 than $10,000.
3. Include Children in Household Budgeting
Do you have a shopping or entertainment budget each month? Try including an older child on budget planning for the next month. Kids learn quickly when they have to stay home bored for two weeks because they blew the entertainment fund during the first half of the month. Another great idea is to set a grocery budget for an upcoming trip, make your week's list, and then take your child to the grocery store with you. As you place items in your cart, have your child add up the cost of each item until you hit your limit. This is another great exercise in making choices based on limited funds.
4. Gamify It
Turn budgeting and saving money into a game. Give your shopping lists to your younger kids and let them search online or in the newspaper for coupons and sales. Maybe you could promise to put a percentage of the money they save into a bank account for them to purchase something special down the road. You could even encourage older children to learn lifelong investment skills by participating in a stock trading simulator such as The Stock Market Game.
5. Make Them Earn It
Knowing how to save, invest, and spend money is important, but one of the best things you can do for your children is to instill a good work ethic in them by letting them earn money on their own. Whether your teen works part-time at the movie theater, or you help your little ones start a lemonade stand, the willingness to work hard and be rewarded is one of the best financial lessons you can pass on to them.
Financial Literacy for Teens
Real World Money Lessons for Kids and Teens
Rich Dad Poor Dad
Think and Grow Rich
Each of these books contains good nuggets of wisdom that can be used to start conversations about money. A family that reads about finance together gets rich together.