Nearly 4,900 Staten Islanders graduated high school this year, but how many of those kids have a basic understanding of financial literacy? How prepared are they to manage their own money as they embark on a new career or college journey? The ability to understand and effectively use financial literacy skills—like budgeting, investing, and basic personal financial management—is a critical skill many parents, and schools, fail to prioritize.
In addition to raising four kids of my own, I lead A Chance in Life, a nonprofit that supports at-risk youth across the globe. It launched a program on Staten Island this summer.
Financial literacy is a critical component of my kids’ upbringing and A Chance In Life’s programming. Over our decades of work at A Chance In Life, we have learned it’s never too early to teach financial literacy to kids. It enables youth to solve problems within their own families and communities. It is a skill imperative to building independent individuals and resilient communities. Here are five tips that we use to build kids’ financial literacy and nurture their independence.
Here are five Tips to Teach Financial Literacy for Kids:
1. Start having conversations about money when your kids are young.
There is a misconception that talking to your kids about financial literacy should start in their preteen or teenage years. It should start far sooner. Research shows that by age 3, kids grasp basic money concepts. By age 7, many of their money habits are already set. An investment in financial literacy for your kids will pay dividends for years to come.
Kids become disengaged from a subject they feel is not relevant to them. So, as they do chores around the house, reward them with a small weekly allowance and show them how to build a simple budget to achieve their goals (like buying that doll they wanted at the store). As they ask questions about the world around them, use your answers as an opportunity to explain the value of money and wise financial decisions. Start the conversation about finances with children early, and develop more advanced discussions as they age.
2. Talk to your kids about needs vs. wants when it comes to buying things.
There are two common phrases all parents hear from their kids: “I want it!” and “I need it!” When it comes to financial literacy for kids, budgeting, and quality decision-making, differentiating between wants and needs is an imperative skill. Hone this skill with young children at the grocery store. Show your list of items to your kids and ask what they think is a want and what they think is a need. Explain that toilet paper is a required purchase because it is essential for everyday life. The cake mix is a want, it is something the family wishes for and has a desire to possess.
With older kids, progress to discussing how a want purchase can inhibit a need purchase. Buying that video game that you want now is not necessarily a bad decision, as long as there is a savings cushion to buy something they need, like a set of textbooks, as they head off to college. Now is an opportune time to explain the 50/30/20 budgeting rule:
- 50 percent of your teen’s spending should be on their needs
- 30 percent should be on their wants
- 20 percent should go into savings
This helps with their self-control on spending, and managing finances becomes much easier to comprehend. Check out this calculator to help make the abstract rule more concrete for your kids.
3. Open a savings account for your child.
Another great way to teach financial literacy for kids is to turn their piggy banks into savings accounts. Bring your kids to the bank with you to open an account. Dive deeper. Explain terms like interest, balance, wire transfer, and ATM. The more they know about finances, the more they can take control of their own spending, saving, and financial decisions.
While saving is important, it is also critical to educate children on the value of giving and how it helps build a stronger community. Use a website like CharityNavigator.org to search for charities that cater to causes they are passionate about. Or keep it simple for younger children. If they care deeply about animals, help them set aside a couple of dollars a month to donate to an animal shelter on Staten Island. Still need ideas? Check out these volunteer opportunities on Staten Island.
4. Use financial literacy for kids to raise independent, empowered adults.
When about 4 in 7 Americans are financially illiterate and report being unable to manage their finances, it is incredibly difficult to live an independent and empowered life. Defy the statistic that says only 23 percent of kids indicate that they talk to their parents frequently about money. Instead use financial literacy to nurture independent and empowered children.
5. Explain that all actions have consequences, even when it comes to money decisions.
Getting control of one’s own finances is fundamental to success in life. Financial literacy for kids provides the base needed to answer questions young people will face such as should I lease or buy a car and how much rent can I afford to pay for an apartment.
We recently had a cohort of high school interns from Staten Island attend classes on financial literacy for kids to learn that consequences can be monumental (in both good and bad ways), especially when it comes to managing finances. This lesson is easily explained through Bankrate’s Save A Million Dollars Calculator. Youth can input their age, millionaire target age, amount currently invested, savings per month, expected rate of return, and expected inflation rate to see at what age they can become a millionaire. Their actions, specifically how much they save each month, have consequences, in this case, when they will reach that millionaire mark.