According to a report by the Brookings Institution, teenage financial literacy is positively correlated with asset accumulation and net worth at age 25. It may be surprising for parents to hear that only 28 states have some type of financial education standards in younger grades, including middle school, according to the Brookings report.
For us, this begs the question: If a school in your area isn’t implementing these types of courses, what can parents do at home to start the process?
The money talk may not be as intimidating as other conversations you might have with your kids, but it’s still a lot to think about. Believe it or not, 49 percent of parents say they’re not sure how to explain money to their child. Our answer? Start simple — explain common budgeting terms or have a chat about why saving is so important.
When kids make decisions on whether to spend or save their money, they’re learning about trade-offs. Kids learn a lot of other valuable lessons when they manage their own money, and the sooner they get started the quicker they’ll learn.
Open the conversation with something like, “You might not have enough money to buy XYZ right now, but add to your savings over time and you’ll get there!” Another way to plant the seed? Try pointing out something that you’re saving for—maybe it’s a new TV or a family vacation. This opens up the conversation and makes it relatable.
Some tips on talking finances with the kids:
- Get started early. Savings accounts can be created as soon as your child is born. You can do this quickly and easily by signing up for apps like Greenlight.
- Set up recurring deposits. Deposits add up and grow over time, especially if you’re earning interest. When you’re ready, show your kids the impact of saving regularly.
- Provide hands-on experience. Start giving your kids real-world experience with money and making financial decisions. When a night out at the movies means a delay in buying a new videogame, they’re learning. When they decide to eat at home instead of spending money at a restaurant, they’re taking action. Rather than learn these lessons when they’re out on their own, they can learn with you by their side, which is comforting for both of you.
- Teach kids about saving. If kids can spend it, they can save it. Kids are tech-savvy so us an app like Greenlight that easily shows them what happens when they save money over time. When they start earning some money of their own—whether from gifts, allowance or chores—encourage them to save some of it, even if it’s for a big purchase down the road.
- Talk about interest. Interest and compound interest are incredibly important for building wealth over time, but it can be tough for kids to grasp. Break down these concepts to your kids in a way that is easy to understand and fun to learn about. A hands-on approach is setting your own interest for your kids.
- Explore investing as a family. We encourage kids to explore real-life investing with their parents. Work with kids to pick stocks of companies whose products and services they understand and use. Have them research the companies they know to understand what they do, how well they are performing now, and how well they may be doing in the future.
To ensure our younger generations are growing up with a solid baseline of financial literacy, it’s important for these lessons to start in the home when kids are young. The greatest gift you can give your kids is to help them pave a path to financial independence.