Financial Literacy and The Importance of Teaching Children and Young Adults About Money

Due to the pandemic, many of us are facing the reality that our children are not going to be headed back to school in the Fall and instead will most likely continue with virtual learning. There are many creative and engaging ways to teach life lessons outside of the classroom, even if you are not a certified teacher! One area that is important to talk about with children at any age is finances. 

The sad truth is that most children are growing up without any financial education whatsoever, whether at home or at school. Since 2016, not one U.S. state has added personal finance to the K-12 standards.(1)
​This lack of financial basics is creating long-term negative effects.  For example, nearly one fourth of millennials are spending more money than they earn and 67% of Gen Yers have less than 3 months’ worth of savings in emergency funds.(2)

Studies show that children benefit from learning how money works, beginning at a very young age. These are just a few of the benefits that come from financial literacy:

• A better understanding of the United States and the world economy
• Young adults who open a savings account as a child tend to have more assets as adults(3)
• Kids who spend and handle money on their own (with their parents’ supervision) tend to be more self-confident about money once they are on their own and less anxious about their finances(4)
• Greater chance your child will save for retirement
• ​Shown to have a reduced amount of personal debt as an adult and a lower likelihood of using high-cost methods of borrowing

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While many parents understand that there is value in teaching their kids about money, they often are not sure where or how to start. These are three ways to think about teaching your children about money:

1. Demonstrate and demystify the relationship between work and money: You can do this by including kids in family budget discussions. Meal times are a great time to talk to kids about money. If you are planning a family vacation, for example, have them research how much items cost. They can look up airline flights, car rental rates, hotel options, local activities, etc. 
2. Open a savings account with your child: A perfect opportunity to teach children about budgeting and saving is when they receive money from special events or birthdays. Consider taking your child with you to the bank to open the account or having them help make online deposits. You can have them split the received money into thirds: a third can be used on themselves, a third given to a charity, and a third put into a bank account. Also consider letting your child invest their money in the stock market. You can let them pick the stock the money is invested in. I remember investing in McDonald’s when I was in third grade! I was so excited as my mom explained that I would have a VERY small ownership in the company. Then, each quarter, she would show me my account statement and I could see how the value would go up and down. These examples are powerful ways you can show children the power of compounding as well as build their confidence in saving for the future.  
3. Play games involving money: Money-themed board games like Monopoly or Life are engaging, memorable introductions into understanding how money works. Play store or restaurant and include your children when you make trips to the bank or ATM machine. 

​As women business owners, teaching financial literacy to our own families, especially to our daughters, is very important. Studies consistently find that women have lower financial literacy levels than men, even after accounting for marital status, education and income. This gender gap in financial literacy is observed throughout women’s lives.(5) However, as parents we can stop this trend. Parents are likely to pass down good and bad financial habits to their kids. Parents who discuss financial topics with their kids at least once a week are significantly more likely to have kids who say they are smart about money (64% vs. 41%).(6)

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1. https://www.councilforeconed.org/wp-content/uploads/2018/02/2018-SOS-Layout-18.pdf
2. https://www.cehd.umn.edu/fsos/research/ruralmnlife/pdf/moneyhabitsforlife.pdf
3. https://web.b.ebscohost.com/abstract?direct=true&profile=ehost&scope=site&authtype=crawler&jrnl=10523073&AN=102199828&h=CFh2RsEYZIFJaoNkPtgTj2nSv8Phv1IDxjosT8y7ToF55Q3FJVReT%2bTSBZal9%2ft1%2fxuxr7o127y8tdcE0CIJ8A%3d%3d&crl=c&resultNs=AdminWebAuth&resultLocal=ErrCrlNotAuth&crlhashurl=login.aspx%3fdirect%3dtrue%26profile%3dehost%26scope%3dsite%26authtype%3dcrawler%26jrnl%3d10523073%26AN%3d102199828
4. https://web.b.ebscohost.com/abstract?direct=true&profile=ehost&scope=site&authtype=crawler&jrnl=10523073&AN=102199828&h=CFh2RsEYZIFJaoNkPtgTj2nSv8Phv1IDxjosT8y7ToF55Q3FJVReT%2bTSBZal9%2ft1%2fxuxr7o127y8tdcE0CIJ8A%3d%3d&crl=c&resultNs=AdminWebAuth&resultLocal=ErrCrlNotAuth&crlhashurl=login.aspx%3fdirect%3dtrue%26profile%3dehost%26scope%3dsite%26authtype%3dcrawler%26jrnl%3d10523073%26AN%3d102199828
5. https://gflec.org/wp-content/uploads/2014/12/economic-importance-financial-literacy-theory-evidence.pdf
6. https://www.troweprice.com/corporate/en/press/t--rowe-price--parents-are-likely-to-pass-down-good-and-bad-fina0.html