Understanding and promoting the importance of financial literacy has been a part of our national dialogue for well over 200 years. Consider this letter written by John Adams to Thomas Jefferson recognizing the need for financial literacy, “All the perplexities, confusions, and distresses in America arise, not from defects in their constitution or confederation, not from a want of honor or virtue, so much as from downright ignorance of the nature of coin, credit, and circulation.” That letter was dated August 23, 1787. Here we are 230 years later—occupying the most sophisticated age the world has ever known—and that statement couldn’t be more relevant. Though it is safe to assume that John Adam’s words related more to the nation than to specific individuals, it is poignant as to the power of his convictions, that solving some of our social ills require a unique understanding of money. The awful truth is that the average household is often ill equipped to sufficiently educate their children about money. In many instances parents themselves may have come from a background where they were not exposed to a conceptual understanding about money.

Having worked in the financial field for over two decades, I saw up close that many individuals do not have financial knowledge that extends beyond owning a savings or checking account. Because money permeates every aspect of our lives, whether it’s shopping, recreating, planning for college, looking for a job, getting married, purchasing a new car, home or retiring, it warrants special focus and attention.Over my career I have observed four key age appropriate concepts that can help guide the parent/child money conversation.

Financial Literacy for Kids –

Concept 1: Budgeting

One of the ways parents can communicate the concept of budgeting to their children is by using the term in conversation. Children are curious and spontaneous by nature and will give parents ample opportunities to talk about money, especially when the conversation begins with, “mom/dad can I have?” By using such opportunities to set expectations with your child that the family is on a budget and will have to plan for purchase, (even if you can afford it) is one way to introduce your child to the concept of budgeting. This is not a no… it’s more of a let’s review this request. Budgeting, as interpreted by your child, can be eventually perceived as a unique family value. Secondly, use the opportunity of providing an allowance to your child to familiarize them with the practice of budgeting. It could be as simple as teaching them how to plan for what they want as well as how to save for longer term goals, such as Mother’s or Father’s Day gifts. Just like any other educational concept, the earlier children are exposed to them, the more likely they become proficient later in life.

Financial Literacy for Kids –

Concept 2: Credit

Understanding credit, how it works and how it should be managed is currently a priority on the nation’s Financial Literacy agenda. With trillions of dollars in both student loan and credit card debt negatively impacting millions of Americans, it begs the question whether thing’s would be different if people knew more about credit much earlier in life. It is critically important to not only create a foundation of understanding for our children on the management of credit, but to also help them avoid the pitfalls of being in lifelong debt. A simple exercise: use a one dollar coin and several pennies on the kitchen table to demonstrate how one dollar borrowed at 7 percent interest can be visually represented. I have a feeling this exercise will work just as well with chocolate chip cookies.

Financial Literacy for Kids –

Concept 3: Savings

Kids are generally not instinctive about preparing for the future. Such planning comes with insight and maturity. It is the responsibility of parents to teach children how to plan. One of the first steps to take in that regard is to practice what you preach. It is much easier to show your child than to give them a lecture.  Although the lesson here is fairly simple to communicate, it is easier said than done. That said, kids love a challenge, so perhaps you can incent them to save a percentage of their income for a specific reward.  For example, every hundred dollars they save you give an additional twenty to their savings fund. The goal of course is to encourage saving versus indiscriminate spending. Be creative, find ways to engage your children to save at least 10 percent of their income.

Financial Literacy for Kids –

Concept 4: Investing

Before children get old enough to work part-time or assert their independence socially and financially. It would serve them well to be familiar with the key financial principle of investing. Broadly defined investing is expending money with the expectation of achieving a profit or material result by putting it into financial schemes, shares, or property, or by using it to develop a commercial venture. However, in the context of a middle or high schooler for example, investing could be time invested in studies, to secure better academic scholarship opportunities and ultimately better college and career opportunities. Parents must be wise enough to link the concept of investing to matters where children can relate. For example, kids are engaged in the world of social media and mobile technology. Those platforms provide a great segue into an investment discussion as it relates to the producers of those products and services. Talk to them about the unique opportunity to not only be a consumer of great technology but how to also invest in something you use or enjoy by becoming part owner through stock purchasing. Plant the seed that investing can be a great vehicle to goals achievement and financial wellbeing.

These four concepts are constant throughout our entire financial lives. Both adults and children should have a good understanding of these 4 key concepts about money. The goal should be to promote the principles of financial discipline. We all know how critical it is for kids to formulate strong social footing, but we should all recognize the importance of developing strong economic footing as well.

The Community Connection

For many families in the low and moderate income demographic, non-profits and faith-based organizations have become important surrogates in bridging the knowledge divide for both parents and children as it relates to understanding money. One example would be the recent partnership between Operation HOPE, a major international financial literacy organization, and the Church of God in Christ, Inc., a 6-million-member denomination.  Their joint initiative seeks to provide Financial Literacy programing across the nation through their network of local churches. In addition, many local banks in partnership with the Federal Deposit Insurance Company (FDIC) also provide a Financial Literacy Curriculum called Money Smart, a financial education curriculum designed to help low and moderate income households. Parents can seek out these organizations either locally or via the internet to learn more about their financial education programs and how they can be accessed either locally or remotely. The Consumer Financial Protection Bureau is also a great financial education resource for both adults and youth. They provide a host of both printed and webinar content in their resource library.



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