The United States is facing a massive lack of financial independence. In fact, the National Debt currently stands at more than $30 trillion! With the country normalizing debt, the trickle-down impact of financial irresponsibility is painfully apparent.
A combination of financial awareness, knowledge, skills, attitude and behaviours necessary to make sound financial decisions and ultimately achieve individual financial well-beingThe Organisation for Economic Co-operation and Development (OECD)
According to the S&P Global Financial Literacy Survey, only 57% of Americans are financially literate. Many Americans are unable to handle unexpected financial hardships and cannot cover a $1,000 expense from savings. It’s no surprise that younger generations face financial uncertainty.
One of the best ways to combat future challenges is to foster growth through learning experiences.
– Start the Conversation
It all starts at home! Talk about money matters. Communication is a great learning tool. Children should understand what money is, how it’s valued, and how it operates. It’s important that they are introduced to the concept of monetary limits and budgeting, especially as they become exposed to consumerism.
Money is not a taboo subject, but rather an integral part of everyday life. Without the foundation of basic financial knowledge, children are ill-prepared to join the world as capable adults. Healthy conversations about finance encourage open communication and create a safe place to ask questions.
– Help Create a Budget
Use a visual aid to guide children in creating a budget. Gather funds from gifts, allowances, and other earned money to separate into different categories. Set up multiple piggy banks or a digital budgeting app to split money into specified goals, such as: Fun, Future, and Donate.
This type of visualization allows children to understand the value of money by teaching them to separate and save for wants, needs, and future plans.
– Use Mistakes as Teachable Moments
Have you ever made a bad call financially? Perhaps you’ve splurged on an unnecessary purchase beyond your means or missed a bill payment. Or maybe you’ve made a terrible investment? It might feel embarrassing to admit these mistakes, but they offer great learning opportunities. Reframe mistakes as teachable moments. After all, failure is an excellent teacher and a part of success. Talk to your kids about these moments. You don’t have to disclose every gory detail, but rather focus on the general experience.
- What did you do?
- Why did you do it?
- How did it affect you?
- What did you learn?
It helps to acknowledge mistakes of all kinds, not just financial ones. Mistakes and failures are a part of life. We learn from ourselves and one another as we navigate our own paths. Constructive conversation about your mistakes will help your child understand that mistakes are normal and necessary for growth.
– Review and Discuss Utilities
Introduce the idea of utilities early on. Kids should be aware of consumption costs. Teach them the value of running water, electricity, and internet. These are not free services and should be understood as such. What is used must be paid for. Once children are old enough to understand the concept of utilities, it’s a great idea to look over a usage report or bill with them.
Reviewing a bill will provide insight into measuring usage and will introduce the process of bill payments.
– Encourage Delayed Gratification
We live in a society of immediacy. A single click of a button grants access to so much – too much, even. Instant gratification has created a sense of artificial fulfillment, quickly followed by disposal, and easy replacement. Rinse and repeat.
Help children understand the reward in working towards a goal. Have them make a vision board or some other form of visual representation. There is a lot of heart and pride in true achievement. Create an environment that encourages striving for a goal, securing it, and sincerely celebrating it.
Delayed gratification provides a strong sense of meaningful connection and character-building. These elements are not as likely pronounced through instant possession from a quick click of a button or charge to a credit card.
– Open a Checking/Savings Account
Guide children through opening their first checking or savings account. There are many kid-friendly bank accounts that allow for joint access and management. A bank account provides access to digital learning tools, money management, and incurred interest. It also creates a sense of responsibility and independence.
– Explain the Benefits of Good Credit
Teach children about building good credit history to empower them to borrow for purchases later in life. Good credit opens doors to life-changing opportunities, such as:
- Varying loans (mortgage, personal, business, etc.)
- Access to exciting rewards credit cards
- Greater negotiating power
- …and more!
Explain that excellent credit is maintained by spending below one’s means, paying bills on time, and keeping accounts manageable. Advise them on how to use credit cards responsibly to avoid carrying balances. These guidelines provide children with an outline to obtain credit as they progress through life.
– Use Your Resources
Take a field trip with your kids! Visit your local banks and credit unions. These establishments often provide free personal finance material, and in some cases, classes. You can also explore free online personal finance courses or participate in a family-friendly financial literacy program at your local library.
Truly, you don’t (and shouldn’t!) have all of the answers for your kids. You don’t have to do this alone. Get creative, reach out, and have fun learning together!
– Address Different Sources of Income
Educate children about the different types of income. Income opportunities exist BEYOND the day job! Based on studies by the IRS and author/researcher Tom Corley, it’s been determined that the average millionaire has 7 streams of income.
- Earned – Paycheck income from your primary job
- Business – Income after expenses from owned businesses/side hustles
- Rental – Income from rental real estate
- Dividend – Income from stocks
- Capital Gains – Income from selling appreciated assets
- Royalties – Income from selling the rights to something personally created/invented
- Interest – Income from savings, CDs, bonds, and other lending activities
Most folks are generally content with 1 or 2 streams of income. However, it’s valuable to know there are additional ways to earn!
– Discuss Alternative Post-High School Plans
College is not right for everyone, nor is it an immediate option for everyone. It’s incredibly important to talk about alternative paths after high school. Open communication offers a chance to raise questions and find direction. First, speak and listen to each other. Then, put together a list of options to illustrate that there isn’t only one way to move forward.
- Full & Part Time Employment with/without Tuition Reimbursement
- Full Time College
- Vocational/Trade Schools
- Military Service
- Volunteer Service Programs
- Coding Bootcamps/Self-taught Programming
– Introduce the Basics of Investing
An introduction to investing gives children insight into how money can potentially grow. Though the topic can feel a little overwhelming, you don’t have to be a proficient investor to start the conversation. In fact, it’s easy to review the basics of investing through free and accessible resources online. Also, don’t forget about your local library – they have tons of different educational material!
Together, you can explore the power of compound interest, tax-advantaged accounts, and diversification. If and when children are ready to put their knowledge into practice, there are a handful of free stock market games available for continued learning! This exposure and learning experience can help them make better informed financial decisions as they navigate the world.
Twenty-three states currently require a personal finance course to be completed prior to high school graduation. It’s incredible that schools mandate courses in literature and mathematics for graduation, but not finance. While the standard subjects are important, it’s truly disappointing that not all states require a subject so intrinsic to our lives: PERSONAL FINANCE!
Despite this bureaucratic frustration, however, it looks like the country is starting to shift towards the need for personal financial education. More and more states are working to require these kinds of courses in their high school curriculum.
Regardless, the understanding and application of money still begins at home. Americans cannot rely on the public education system to instill strong financial habits. More often than not, kids repeat what they see at home.
Ultimately, it’s important to encourage a healthy financial outlook. Guide them to understand their own financial capabilities, so they can become productive and independent people. If we can’t save the national debt, then we can at least work on saving ourselves.