Evidence shows that as little as one-third of America’s youth possess a basic knowledge of financial terms and concepts. This lack of monetary skills is likely to follow through into adulthood, when it will truly become an issue in the real world. Anything from purchasing a car to saving for retirement can be made tremendously difficult without a basic knowledge of interest, bank accounts, investing and other related topics.
We can all agree that financial illiteracy is potentially harmful for anyone, but the question of how to address the issue at an early age can be a difficult one. Children don’t typically need to make major financial decisions until they suddenly find themselves living away from home, so may not get much practice handling their own money. To avoid a jarring transition parents should be proactive in engaging their kids with good financial habits.
Habits starts at home (and at the store)
It’s no secret that children learn by example, whether that example is a teacher, a parent, or an older sibling. Schools are beginning to incorporate more financial literacy lessons into the curriculum, but the scope and reach of these courses is still far from perfect. Parents and role models can fill the gap by making an effort to discuss financial topics with children whenever possible. Try incorporating concrete examples that impact your family, such as a home mortgage, to help children relate to such topics.
Even out-and-about, there are constantly opportunities to teach valuable financial lessons. On trips to the grocery store, for example, talk over decisions of what to buy and what not to buy with your kids. Chances are they’ll absorb this habit and find themselves doing the same as a young adult purchasing their own food for the first time.
Banks and credit unions can be your partner
Outside of the home there are plenty of educational resources to supplement financial discussions. For example, National Credit Union Youth Week, which begins April 21, is a time when credit unions focus on events and promotions to incentivize saving among young members. If you belong to a credit union, this week would be a perfect opportunity to teach your children more about banking.
They may not yet need a checking account or to take out a loan, but for kids, a simple savings account can demonstrate the most basic elements of how banks and credit unions operate. Many institutions actually allow parents and children to open a joint account, helping to start saving for a child’s future as well as provide a real-life educational tool. Often, such youth savings accounts include access to kid-friendly online games and activities (such as MoneyIsland) – why reinvent the wheel when so many great and free resources are available already?
John Gower writes for NerdWallet, a website dedicated to helping people learn more about their personal finances and save money on CD rates, checking accounts, credit cards and more.
Photo courtesy Atomic Taco