Teaching kids the importance of financial literacy can be a chore. Children don’t want to learn about overdrafts and mortgages and would much rather spend their days connecting with their friends online.
However, as a parent, it’s your job to ensure that your children are prepared to take responsibility for their finances once they leave home. This is crucial, as only 57% of Americans are financially literate, while 73% of teens say they’d like to learn more about money.
You can make financial literacy learning fun, too. Rather than sitting down at the dinner table for a boring conversation about budgeting, consider booting up video games that focus on making money. Alternatively, you can give your child access to a limited bank account via an app to help them visualize their finances. This brings a sense of excitement and responsibility to the topic and helps you talk openly about ideas like investing.
What is Financial Literacy?
As a parent, you may assume yourself to be financially literate already. However, many Americans are overconfident in their ability to understand core financial principles. This is a real issue, as you don’t want to give your child a false sense of confidence when talking about things like debt management and tax planning. Before teaching your kids make sure you’re up to speed on financial literacy principles like:
- Personal budgeting;
- Debt management;
- Investing;
- Insurance;
- Interest rates;
- Retirement planning.
These core principles should form the backbone of your financial literacy lessons. There’s no shame in admitting that you don’t fully understand the intricacies of investing, either. Simply set aside some time to learn more yourself, subscribe to trusted resources like The Economist or the Wall Street Journal, and speak to your bank to create a financial plan that works for you.
Interactive Financial Literacy Education
Lengthy financial literacy lessons are sure to bore any child. You can’t expect your kids to stay engaged while you discuss the benefits of 401(k) and should expect a minor revolt if you bust out a spreadsheet to start building a budget together. Fortunately, there are plenty of games and activities for financial literacy that you can lean on today, including:
- The Game of Life: Built around real-life scenarios, this game helps children understand the importance of paying bills on time and building credit. It teaches kids that proactively managing their money can result in positive rewards, too.
- Pay Day: Millions of Americans live paycheck to paycheck. This game helps kids understand the importance of spreading their money throughout the month and accounting for unexpected bills.
- Animal Crossing: A child-friendly favorite, this game helps kids earn money and save digital cash. Their little avatar can even apply for virtual mortgages and achieve some long-term financial goals. It’s also a great stress reliever, as kids spend plenty of time in nature when playing the game.
Make sure you follow up any games or digital experiences with a short conversation about what your child learned. This is key, as many kids will overlook the value of the lessons they’ve been taught when playing Animal Crossing or the Game of Life. Double down on the teachings that these games offer by talking about your family’s financial goals and use the positive momentum to spark an authentic interest in money management amongst your children.
Digital Finances
More people use digital banking apps to manage their budgets and plan for expenses than ever before. This means you must have a great understanding of digital financial literacy if you want to help your kids understand how to manage their money and make the most out of their paychecks. You can help your kids improve their digital financial literacy by:
- Giving them access to budgeting apps to help manage their allowance.
- Open digital wallets so they can use their phones to pay for goods and track expenses.
- Let your kid sit in on robo-advisor calls when you are managing your own wealth.
You’ll need to have regular conversations about digital security, too. All of your children’s passwords should be strong and unique. They should never repeat passwords and should enable two-factor authentication on all devices connected to their finances. You can also help your child learn to recognize common scams like spam, spoofing, and phishing attacks, too. This will keep them safe from harm and reduce the risk of an attack that steals their financial information.
As a parent, it’s your job to help them understand unconventional forms of wealth, too. Try to have responsible conversations about emerging ideas like blockchain and cryptocurrency. Younger generations have embraced crypto quickly. While some have profited from the practice of investing in crypto, many have lost large sums to scams and fraudulent schemes. It’s impossible to know what the future holds for crypto, but try to temper unreasonable enthusiasm for blockchain that may have been trumped up by influencers who have been paid to tout its benefits.
Allowances and Responsibilities
Talking about finances as abstract concepts will help your kid understand ideas like overdrafts and credit scores. However, if you want your child to truly learn, you have to give them some responsibility of their own. This is crucial, as building financial skills requires practice and may involve failure.
Give your child age-appropriate responsibilities. This means you’ll probably withhold large sums of money like college funds, but can give older teens access to larger allowances and savings accounts. Once your kid turns 18, you can even give them small shares in companies to help them understand how to invest.
Crucially, you must monitor your child’s financial moves and make sure they stay within the law. Children are not allowed to invest money or sign binding contracts. You should follow up with your kids on a weekly basis, too, to learn more about how they are saving and what their financial goals are.
Conclusion
Teaching your child financial literacy is crucial for their long-term development and independence. Start with simple concepts like budgeting and savings before moving on to bigger ideas like investing and interest rates. This will help your kid feel confident when they turn 18 and will ensure they don’t get stuck living paycheck to paycheck.
