Financial Literacy At Any Age
Did you know:
- When it comes to financial literacy, people are least knowledgeable about topics related to financial risk (TIAA Institute)
- Only 24% of millennials demonstrate the ability to understand basic financial concepts (GFLEC)
- Older adults that are overconfident in their financial knowledge tend to have riskier financial behavior (FINRA Investor Education Foundation)
When we look at those statistics, it isn’t shocking that “12% of adults wouldn’t be able to pay their monthly bills if they incurred an unexpected expense of $400 or more” (Board of Governors Report of the Federal Reserve System) and “38% of adults have less than $1,000 saved for financial emergencies” (PwC). These outcomes and statistics are even worse for immigrant families, Black, Indigenous, People of Color (BIPOC), and women (FINRA Investor Education Foundation). The need for financial literacy and education is dire.
Fortunately, there is hope!
Families and schools are starting to take notice and, in 2020, states that required high school students to take personal finance courses increased by 24% from 2018 (Council for Economic Education). This increase in emphasis on financial education in our schools is good, but at Kennedy Financial Group, we believe that really great financial literacy starts young and starts in the home! So, what can you do to teach your kids more about how to make smart financial decisions that will last a lifetime? We have some tips for kids of any age!
Play Store – This may seem like you’re starting too young but, between ages 18 and 24 months, toddlers start to play their first games of “pretend” by imitating things they see adults doing – talking on the phone, putting on shoes, using keys to unlock doors. And, by ages 2-3 years, most toddlers are ready to fully engage in play pretend scenarios (What to Expect). Take advantage of this and play pretend store! You can keep it simple and just fill their pretend cart and practice exchanging things- “if I give you this toy, you give me something in return.”
Get them familiar with money – As they grow older, you can start introducing more sophisticated activities like printing pictures of currency and playing “I spy…” with the details to familiarize them with money.
Teach them basic words and concepts – You can also start teaching them words like “earn,” “save,” “give,” and “spend.” It might be a while before they fully grasp the concepts but, familiarity is the first step!
Kick your pretend store up a notch and play with fake money! You can use this to help teach them counting and basic math concepts.
Get them a piggy bank- Further expand on their familiarity with currency. Let them sort coins and get them a piggy bank!
Start having them earn an allowance – Start allowing children to perform tasks and rewarding them with an allowance. Then help them divide their allowance into three containers – one for saving, one for spending and one for giving. Talk to them about what those containers mean.
Expand on their knowledge and discuss the words “goods,” “services,” “needs,” and “wants.”
Work on Goal Setting. With their allowance and their three containers for saving, spending, and giving, have them set a savings and giving goal. For their giving goal, have them pick a charity, non-profit or cause they’d like to give to. Letting them choose let’s them buy in and gets them excited about the goal. Create some sort of visual to help them on their way like a thermometer with the temperature going up as they get closer to their goal. This will keep them motivated and, they’ll be so proud of themselves when they hit their first financial goals!
Introduce Budgeting. Again, we can add another layer to the pretend store or even talk about this with them when you do actual grocery shopping. Ask them questions like “what are the items we need to make a sandwich? Bread, peanut butter, and jelly. If I give you $10 to buy everything you need to make a sandwich, we have some options – we can buy this loaf of bread that costs $6 or this loaf of bread for $3… which do you think would be best? Which would allow us to have the most money at the end so that we can also buy ice cream or something nice for our siblings?”
Use currency to practice math. When you’re helping your kids with their math homework, use currency and the different denominations to help teach the concepts!
Play the Stock Market Game. Teach your kids about the stock market and turn it into a game! At the beginning of a week or month, have each of your kids choose a stock to follow or pick one to follow with them! Each day, look at the price of the different stocks you chose. Turn it into a competition and see whose preforms best over the course of that week or month. Ask them questions like “When would the best time to buy more of our stock be? When would be the best time to sell?”
Set up a savings account. Talk to your kids about setting up a savings account for them at the bank and introduce what interest is!
Talk about college funding and savings. It might be hard to hold your teenager’s attention – especially when talking about something as “boring” as finances but, young adulthood is a critical time when it comes to financial literacy. Studies have shown that teens who had state-mandated personal finance courses in high school are less likely to borrow high-interest loans than those who weren’t required to take the courses. (FINRA Investor Education Foundation) While not everyone is lucky enough to have one of those personal finance courses offered in their school, it doesn’t mean your child has to suffer. Have open and honest conversations about how they’re going to fund their college education and if they’ll be receiving help from you or not.
Practice budgeting with them. In keeping with those open, honest (and sometimes hard) conversations, talk to your teen about budgeting. Let them see your budget and talk about the different line items. Give them fake salaries and have them practice budgeting themselves. Having honest conversations about how much things like groceries and utilities cost will be so helpful to them in the long run.
Teach them how to keep their finances (and themselves) safe online. Scams and phishing schemes are only becoming more and more sophisticated. And as we move towards a more digital world, it’s vital to teach your kids how to keep their finances and themselves safe online. Teach them about cyber security and identity theft and teach them how to create secure passwords.
Keep the conversations going. As your child gets older and prepares to leave the nest, have serious conversations with them about credit, credit cards and debt. Introduce them to apps that will help them with budgeting such as Dave Ramsey’s EveryDollar.
Introduce them to investing and the importance of retirement savings. There are great tools that can help young adults dip their toes into the world of investing! Having a conversation with them about starting to prepare for retirement even now is vital. You can email our office if you’d like some information or resources to help with this!
Help them protect themselves- and you. No one likes thinking about what will happen to them when they pass away but, estate planning and insurance are key to protecting ourselves and the ones we love. When they’re old enough, cluing your children in on what will happen to your finances when you pass will only help them succeed in the long run. It also introduces them to the concepts of estate planning and insurance and why they’re so important.
Guide them – don’t handle things for them. At tax time, if your child has a job, help them with their taxes – but be sure not to take over. Walk through their forms with them line by line but, make them enter values in and think critically about what they need to do. It’s easier to just do it for them this year but… long term, taking over is not in their best interest.
For more ideas on how to teach your children how to make smart decisions that will last a lifetime, check out our Facebook page!
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
All investing involves risk including loss of principal. No strategy assures success or protects against loss.