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The number of U.S. states requiring personal finance to be taught in school is rising, but kids in the majority of states still aren’t taught basic financial principles in the classroom.
That means lessons on how to save, budget, and balance debts must happen at home. Otherwise, kids in schools where financial literacy is not on the curriculum are left with no choice but to learn from experience—or from their own mistakes.
“A lot of the world revolves around money and debt and savings, and if they don’t understand it, then we’re going to have the same problem we have today, where people are bad savers and have a lot of credit card debt,” says Evan Press, CFP, a financial planner with Equitable Advisors.
Eliza C. of EverydayFinanceGal is one parent looking to end that cycle. She’s a single mom who blogs about her own journey toward financial literacy — anonymously, she says, to maintain separation from her day job.
Growing up with immigrant parents and few resources, she had little knowledge of personal finance by the time she reached adulthood. She learned from experience the importance of establishing good financial habits early.
As she learns more about good money habits and saving practices, Eliza shares that knowledge with her 11-year-old daughter. It’s empowering, she says. Together, they practice financial decision-making and differentiating between wants and needs.
“We have a framework,” she says. “As long as you’re saving some for the future, you have wiggle room for spending.”
Learning from Experience
The current economic downturn provides a prime example of the benefits of a solid financial foundation.
“It’s hard for kids to understand why it’s important to save, but this time does create an interesting opportunity to do that,” says Denise Downey, CFP, founder of Financial Trex, a financial planning firm in Spokane, Washington. “We’re all around our kids more today, so I would hope those conversations about money can happen more naturally and organically.”
Building a knowledge base and smart financial habits now can help prepare children to better weather a future storm.
Starting Small: The Value of a Dollar
First, focus on the foundations. Even as small children, kids can begin to grasp the value of money: what it means to earn, spend, and save your dollars.
“At that age, kids are able to learn that money is a medium of exchange, and they’re able to understand the concept of equivalency,” says Paul Golden, managing director, media and communications, for the National Endowment for Financial Education (NEFE). “That’s when you can really start to promote savings.”
As a starting point, turn to the classics. Using a piggy bank, kids can visualize how savings contributions accumulate over time and provide the means to reach your goals.
Practicing Saving Behaviors
Build upon your piggy bank by opening a dedicated savings account with your child and encouraging regular contributions.
You may choose a traditional savings account at your current bank for easy access, but a high-yield savings account can be a great way for your child to learn about interest and growing money — and it can be opened online.
“As they get older, that’s when you want to start talking about different types of savings accounts,” Golden says. “But don’t throw concepts at them too early.” Use your discretion to determine what conversations are helpful and appropriate, depending on your child’s age and interests.
There are a few accounts on the market directed specifically toward teaching kids to save. Several national banks, such as Bank of America and Wells Fargo, offer savings options with joint ownership for kids and guardians, which allow both to make deposits and withdrawals. Similarly, you can find joint savings from digital banks, such as Alliant Credit Union and First Internet Bank, that also earn high yields on deposits.
But the specific savings account you choose isn’t as important as developing a saving mindset and practices.
Eliza and her daughter track every dollar using a spreadsheet. And while Eliza doesn’t direct where each dollar should go, she offers her daughter incentives to save rather than spend.
“I told her [on] her birthday, whatever she has in savings, I’m going to double. So it encouraged her to track her savings, and every time she wants to buy something, we’ll go through it.”
That incentive can also come from a savings account that earns interest, according to Downey. “Have them look at those statements and even compare month over month,” she says. “Maybe last month you earned $1 in interest, now you’re earning $1.10 in interest. That gets them understanding what compound interest is and the value of continuously saving.”
Even as you save with your child, work toward also saving for them in a separate, independent account. Consider contributing to future education costs through a 529 Plan.
“The 529 is one of the best ways to save for college,” Press says. These are tax-advantaged accounts that can be used for a range of higher education expenses and K-12 tuition costs.
By the time your child begins earning some form of income, whether from neighborhood odd jobs, a lemonade stand, or their first part-time gig, start building financial responsibilities related to income into their savings practices.
You may even choose to start earlier, with a regular allowance.
“It’s less about how much you give and what age you start giving it than how you give it,” Golden says. “There’s a consistent schedule and consistent amount given so the child learns how to make that money last until the next time they receive the allowance.”
Use that schedule to inform your child’s savings plan; work with them to determine a specific percentage of income that goes directly toward savings.
“Even if the job is babysitting or dog walking, make them save part of their paycheck,” Downey says. “Getting them in the habit of saving 10% or 15% of their paycheck from the very first job can help instil that mindset.”
Their first job is also a good time to discuss different banking products that may become necessary, Golden says. Budgeting, as well as checking accounts and debit cards, may become a bigger part of the conversation as your child gets into the teens.
Instilling good financial habits from a young age is only part of the picture. Stay aware of how your own financial practices and saving habits are influencing your child.
How we see our parents and other adults handling their finances can inform how we think about money for the rest of our lives, Press says.
“It’s important for them to see that parents have to save to get the things they want,” he says. “A lot of what kids grow up learning and seeing in the household is eventually how they run their own lives.”
This doesn’t mean that your financial health has to be perfect, though. In fact, being honest about your own shortcomings and mistakes when it comes to money can be a great learning experience for kids.
“Your kids are learning from you, and you might be able to adopt better behavior for yourself as well,” Golden says. “Look for external resources that can support those conversations.”
Look for opportunities for teachable moments. For example, if your child starts asking about where money comes from when you withdraw from an ATM, that’s a cue, says the National Endowment for Financial Education’s Golden. Take advantage of those opportunities to start financial discussions.
More Educational Resources
Here are a few resources for further reading on how to best educate your child about money, and programs you can use today:
- Jumpstart Clearinghouse: An online financial resource library from the Jumpstart Coalition for Personal Financial Literacy, a nonprofit for advancing youth financial literacy.
- Money Smart: A financial education program from the FDIC with tools and strategies to both learn and teach financial skills, their catalog has resources for kids and adults of various ages.
- InCharge Financial Education Resources: InCharge Debt Solutions, a nonprofit credit counseling service, offers free resources for kids of all ages and accompanying teachers’ guides.
- MyMoney.gov: A library of games, activities, and teaching strategies for youth financial education.
- Research upcoming programs or available resources from local community and education centers, as well as tools provided by your financial institutions.
Always make sure you evaluate new financial tools and educational resources and who they’re coming from, Golden says.
He recommends steering clear of any highly commercial educational products and seeking out nonprofit resources. Before implementing any financial literacy strategy or program, do your own research into whether a source is reliable and the information is accurate. If you’re unsure, you can also reach out to a financial professional for guidance.