Having good money skills is important throughout life. And teaching kids financial literacy is important at any age—even as young as the toddler years. As parents, you prioritize your child’s physical health with annual doctor check-ups, but why not consider their financial health, too?
Jennifer Seitz, CFEI and director of education at Greenlight, a financial app for kids and teens, recommends parents do annual “financial check ups” to assess their children’s understanding of personal finance. We spoke with Seitz, who shared tips on teaching kids good money skills that will stay with them for life.
Teaching Kids Financial Literacy
Most schools aren’t teaching kids about financial literacy. Given this fact, how important is it for parents to step in and teach these skills, and how early should kids start learning about money?
According to a recent Greenlight survey, 93% of teens believe they need financial knowledge and skills to achieve their life goals, yet still score an average of only 64% on the National Financial Literacy Test. While America’s kids and teens are interested in personal finance education, they’re not getting all the support they need, whether from the educational system or at home from their families.
Discussing money at home matters. What kids do – or don’t – learn about money at a young age will make a difference throughout their lives. Kids absorb financial lessons regularly by observing their parents, which is known as modeling. Another primary method for learning is having conversations about money. Studies published over the last 10 years, including in the Journal of Family and Economic Issues, show that when parents and kids actively discuss money at home, they’re more likely to have positive financial outcomes starting in early adulthood, ages 18-25.
With so much going on in the news lately about banks closing or being seized, how can parents explain the significance of this news while teaching kids financial literacy?
It can be challenging for parents to explain complex financial news to children if they don’t fully understand it themselves. The good news is that you can learn together! If your kids are curious, you can read or watch news from reputable, trusted sources to evaluate how financial news impacts you and your family as well as the economy as a
whole. Here are some tips to help navigate the conversation:
Start with explaining the basics. Tell your children what a bank is and what it can do, including how your family uses banks. For older children, you can even let them know how they can expect to use bank accounts once they turn 18.
Be reassuring and transparent. If recent news doesn’t affect your family directly, reassure your children that most banks are well-regulated and that the government has systems in place to protect people’s deposits at banks insured by the FDIC, Federal Deposit Insurance Corp. It covers most accounts up to $250,000. If this affects your family, be transparent in sharing what you are comfortable with your children. Ultimately, involving your kids in family financial discussions will help them learn the skills they’ll need to manage their own finances in the future.
Keep the conversation age-appropriate. Use language and concepts that your child can understand. Younger children may not need as much detail, while older children and teens may be interested in learning more about the economy and banking systems.
When it comes to teaching kids financial literacy, you’ve mentioned something called annual “financial check ups.” Can you talk more about this?
Parents usually prioritize scheduling their children’s annual physical exams and biannual dental visits. But there are other important “check-ups” to pencil in the calendar – such as mental health and their developing financial health, among other essential life skills. As parents are using common everyday moments to spark money lessons, it’s also good to slow down occasionally and really try to assess what your child is absorbing—what types of teaching methods seem to work best for them, where their level of understanding currently lies and what they want to focus on learning. Doing this at least once or twice per year keeps both you and your child accountable for progressing their skills. You can readjust goals and focus areas on an ongoing basis as their financial literacy develops over time.
Parents can leverage technology to ensure that their kids have positive, educational screen time. Greenlight recently launched a new, interactive financial literacy game, Level Up, blending education and entertainment to help boost kids’ money confidence.
Tips for Teaching Kids Financial Literacy at Any Age
Seitz shared tips parents can use to instill good money skills in their kids at any age, even as young as preschool.
Tips for kids at the Preschool Age
- Build a foundation around age-appropriate knowledge. Kids generally understand the concept of money once they’re in preschool, which means parents can introduce age-appropriate basics — like what money is used for, how we earn it, and how much things cost — at a young age. Once they grasp these basics, parents can introduce more ways to think about money responsibly, like explaining that money isn’t unlimited, so there should always be a plan for how it will be used. While they may not be ready for discussions around concepts like budgeting money as an adult or building credit for a future mortgage, these foundational conversations will give your kids a baseline knowledge for ongoing conversations about spending and saving.
- Make money a visible part of daily life. Because of the technologies we use daily, like using an app to order and pay for delivery food, many kids don’t see the physical money used for purchases. At this age, it’s important to understand that your kids are always observing your behaviors, so get in the habit of explaining moments out loud, like how you’re choosing the best price at the grocery store or saving up for a fun treat. It shows them there’s a thought process for money choices, even if they can’t physically see the money you’re spending.
- Help them think about the future. The ability to think about the future develops in very young children, and more complex thinking — like planning for the future and prioritizing it — develops over time. That’s an essential skill to manage money well, and you can encourage kids to consider the future when making money decisions now. For example, they can think ahead to something they may want in three or six months — like a new bike for summer if they’re close to outgrowing their old bike.
Tips for kids in elementary and middle school
- Allow them to earn money — and pay for extras. Chores teach kids life skills. An app like Greenlight allows you to give kids allowance for chores completed, which can help teach them the relationship between work and money. If you’re already paying your kids an allowance, take a look if it covers the amount of money that usually is exchanged or spent on their extra purchases in a month, like any treats, games or toys. If not, could they earn that additional money on a regular basis to pay with their own money, or contribute with a one-time chore or new responsibility at home?
- Reinforce their positive money experiences. Talk about their successes and reward them. Did they decide against buying something spontaneously that they may not have enjoyed that much in the end? Smart move! Explain that now they can use the money for something else, which is a core money principle: opportunity cost. Did they choose to save all their birthday money for an important big-ticket item? Tell them how proud you are! And why learning to save is so important as they grow up and become financially independent.
- Teach them how to make a budget. No matter the size of their income, kids and teens should have a plan for their spending each month. Show them how to categorize their past spending to understand where their money goes, and create a budget for how they choose to spend it going forward. If more money is spent in one category, like toys or games , they’ll have less money in another category. If they make spending decisions with their budget in mind, they’ll make sure they can have everything they planned for.
- Encourage them to get an early start on saving for the future. We know that spending money can be a primary motivation to earn. But why not pay their future selves first? A savings plan belongs in every budget!
Tips for kids in high school
- Help them learn to invest. The secret to building wealth isn’t so secret — it’s investing. The longer investments are earning returns, the more money they can earn. That’s thanks to the power of compounding
- Teach them about building credit. Credit is a big responsibility! Not knowing the ins and outs could lead to mistakes that hurt their credit — and finances — in the future. It’s important they understand to only buy what they can afford and pay their bill in full every month. That’s because interest can really add up! They should understand the APR, annual percentage rate, that will be owed on purchases. Especially for major purchases, like education or housing, they should know to try to get the best interest rate on a loan. Good credit will help with that. Parents can provide a head start by helping them get a credit card. Whenever your teen is ready, you can add them as an authorized user on an account that will report your on-time payments to the credit agencies.
- Talk to them about taxes. Teens may be accustomed to paying sales tax on purchases, but may be surprised to see the various deductions on their pay stub when they start working, unless it’s explained to them. For teens working for an employer, taxes will be withheld from their paycheck according to how they completed the IRS’s W-4 form. Even teens who are self-employed could owe taxes if they meet a certain income threshold, so it’s important to consult tax documentation or a tax professional for filing information. Be sure to explain what taxes are used for, too!
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