Kids who don’t have a strong education in personal finance are at risk for making major money mistakes later that could take them years to correct. Without the right financial savvy, they're more likely to rack up debt, wreck their credit scores, and even go bankrupt in the most drastic cases.
Serious money problems, whether created through carelessness or ignorance, could also prevent even qualified people from getting good jobs and buying decent homes.
This is why financial literacy, so critical to an informed, educated and economically thriving population, can and should start young. But who’s going to teach our kids?
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Money management is not taught in most public schools; neither are the basic rules of accounting and economics, in many cases, as students enter high school. Right now just 17 states require high students to take a personal finance course or to have personal finance instruction embedded in an economics or civics course as a graduation requirement, according to the Council of Economic Education (CEE). Only 6 states require students to be tested in personal finance before graduating, the Council found in its most recent Survey of the States.
“We’ve got to do a better job of helping policymakers and educators ensure that students nearing adulthood gain [an] understanding” of financial concepts, said CEE president Nan J. Morrison in a statement. More than 80 percent of teachers, however, don’t feel qualified to instruct kids on personal finance though more than 90 percent agree the topic should be taught in school.
It’s wise for parents or grandparents to introduce financial literacy concepts to children beginning at a young age – and to keep that going in very concrete ways through their school years.
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“Research shows that waiting until high school to teach this topic may be a mistake,” says Beth Kobliner, a member of the President’s Advisory Council on Financial Capability for Young Americans. “Most children’s money habits are already ingrained by age seven,” she adds, citing a 2013 report from the University of Cambridge.
By age seven, most children “are capable of complex functions such as planning ahead, delaying a decision until later, and understanding that some choices are irreversible,” the study found. But kids under the age of eight “have not developed an understanding of the difference between ‘luxuries’ and ‘necessities.’”
In an interview, Kobliner shared a few key tips for parents and grandparents as they strive to teach even very young kids to be savvy about money:
- “Teach toddlers to wait,” she says. “Whether it’s for the swings or for the first day of school, waiting is the key for kids to learn how to delay gratification – the foundation of becoming a good saver” down the line.
- “Show kids how to shop around. Elementary schoolers can learn how to compare prices online vs. at the store before they buy. Try it for school supplies or back-to-school clothes.”
- “Protect yourself against identity theft. Warn teens to never share their Social Security number, bank password, or debit card PIN – not even with their friends. Otherwise, someone could steal the information and use it to open credit cards in their name.”
Kobliner says the mediocre performance of “American teenagers on the first international PISA (Program for International Student Assessment) test of financial literacy was a wake-up call. Of the 18 countries whose students participated, the U.S. ranked just below average on basic personal finance questions like comparing loan interest rates, evaluating a stock’s performance, or even reading a pay stub.”
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Though it’s “long been taboo” in American households to openly talk about money and financial issues, one-on-one conversations – and actions – that explain the nitty gritty are critical. “When kids are very young, stress the virtues of waiting and delayed gratification, and as children get a bit older you can drive home the idea that spending less than you have is the linchpin of a healthy financial life,” Kobliner, whose forthcoming book is Make Your Kid a Money Genius (Even If You're Not), wrote in The Wall Street Journal recently.
Resources abound for any parents or guardians who feel out of sorts about teaching financial concepts. One is the Money Savvy Generation website, begun by Susan Beacham, a former banker and mother of two who wanted to “get out in front of money management behavior before bad habits set in.” Her personal financial curriculum for kids is now being taught in districts across the country.
Another is the Money As You Grow website, which shares age-appropriate financial lessons. For even the most blasé teenagers, for example, it breaks down compound interest, credit reporting, investing in a diverse mix of stocks, bonds and cash, and shopping for health insurance into understandable and actionable concepts.
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