It’s vitally important to develop financial literacy for children in a way that takes advantage of opportunities to impart good money habits. Initially, consider that each child is born into a certain home and environment. The financial situations into which children are born will have key influence on their future finances. But even if a kid is born into poverty, there is always hope to work toward greater financial wellness.
Next, think about the pressures that influence a child’s financial behavior. Children absorb information quickly and easily. Unless their parents take proactive steps to teach them about financial health and neutralize the powerful effects of advertising and peer pressure, kids may pick up negative habits around money. One study analyzed how parental values affected children, finding that parents’ savings rates were significantly associated with the rates at which their children saved (https://home.uia.no).
Then it’s time to consider people’s attitudes and beliefs about money, which are key indicators of their financial state and determine their willingness to improve their finances. As children grow up, their emotions toward money management also are maturing. Efforts at building financial literacy for children should help kids become self-reliant and self-assured when handling finances.
Lastly, most people never receive any training in financial literacy for children. Parents lack knowledge and confidence to teach them, and very few school systems mandate financial education. Those lucky students who do get exposed to classes find that the programs being offered are substandard. It’s time to develop programs in financial literacy for children that address behavior, psychology, management systems, and key influences.
Is there a theoretical basis for deciding how to teach financial literacy for children? Yes. Piaget’s Theory of Cognitive Development breaks down activities and delivery methods across three stages in a child’s life: preoperational (ages 2 through 6), concrete operational (ages 7 through 11), and formal operational (ages 12 through adult). The preoperational level is when kids are developing language skills, and can be introduced to simple tasks first and then problems of increased complexity over time. One of our favorite activities is a “moving budget” where children move around the room to balance an imaginary budget. At the concrete operational level, kids develop logic processes about concrete objects. At this stage they understand volume, mass, and numeric relations. After age 11, youth benefit from group and project-based activities. They are becoming abstract thinkers, and we have special opportunity to mold positive financial behaviors among kids at this juncture.
Financial Literacy for Children Can Help them Live “American Dream”
All parents want the best for their children. Wouldn’t it be great if your kids ended up living their personal “American Dream?” But many parents aren’t aware what a huge difference they can make on their children’s ability to live their dreams. By teaching and modeling financial literacy for children, we can help them pick up good money habits that can secure their futures.
Recent research has shown that kids are ready to learn about money at a very early age. And money management skills learned very young, along with money habits inspired and encouraged by parents, have the greatest impact on kids’ success with personal finance by the time they reach adulthood. When it comes to financial literacy, children have a lot to gain.
Teaching children about money can be fun for both kids and their parents. Basic money concepts like relative value, trade and exchange can be taught using games and fun activities. When kids are toddlers, parents can help them practice counting coins, identifying individual coin values, and calculating which of a stack of coins has greater value. As they become comfortable and familiar with coins, they can graduate to doing the same activities using bills. By kindergarten and the early grades, parents might set up a mock store to help children learn principles of exchange, supply and demand, and how stores and shopkeepers fit into the world.
Studies also have proven that people who acquire financial literacy in childhood are happier, healthier, and more confident as adults. Most people wish they had learned more about money when they were young. Families that promote sound money management are giving their children an opportunity to experience everything life has to offer. That’s why financial literacy for kids is a step toward living the American Dream.
With Financial Literacy Children Get a Head Start
Remember learning how to drive? Probably your dad or mom took you to a safe spot where you could practice, like maybe a huge open parking lot with few obstacles or hazards. You needed to learn some basic skills—like starting, stopping, and turning—before you ventured out onto the streets. When it comes to developing financial literacy children benefit from learning from parents in the safety of their homes, in much the same way as they learn to drive in a safe environment.
Teaching children financial literacy can start at a very early age. In fact, the younger they begin to learn the basics of money, the better habits they’re likely to form as they grow. You can give your children a head start toward financial wellness and freedom in adulthood. How? By modeling responsible fiscal behavior yourselves, and providing them with opportunities to practice making money decisions at home, long before they venture out into the real world.
Cash Cow and Pig E Bank is an excellent program that provides financial education for kids. This program is available through the National Financial Educators Council (NFEC). Contact the NFEC for more information about how to receive the training materials. Much like driver’s training creates responsible drivers, this money management training program gives young people practical financial tools to help them develop into safe, responsible, contributing adults.
On the other hand, if you fail to teach your kids how to manage money effectively, the consequences can be devastating. In the absence of financial education for children, they will probably face real challenges when they move out on their own. Financial problems are a leading cause of stress, relationship difficulties, and depression. Help protect your children from a stressful future by teaching financial literacy now, while they’re still young. The NFEC can help.
How to Teach Children Financial Literacy
Teaching children good money habits is a great way to ensure their success throughout school and into adulthood. Small kids are not yet attending school, so parents need to shoulder the burden of teaching children financial literacy. There are lots of ways to help kids understand money that are easy and fun.
First it’s important to recognize the stage of a child’s development and how that affects their ability to learn about money. Financial education for children can take lots of forms. Parents should adopt good money habits themselves and show their kids how they make important spending decisions. Let children practice handling, counting, and recognizing the value of different money denominations.
Another approach parents might take to teach children about money is to set up a “family bank.” Instead of just handing kids an allowance, put the money in a safe place and keep track of how much they have. When they want to buy something, they have to come to you and “withdraw” the amount they need. Give them an account passbook, and help them figure out how much they’ve spent and how much they have left. The family bank teaches them the basics of income and expense.
As children get older you might introduce more complexity into the family banking system, such as compounding interest, loans, or certificates of deposit. Eventually children can graduate to the point where they are ready to open real accounts with actual financial institutions. These methods will give kids financial literacy skills that will serve them for a lifetime.
It’s almost never too early to start helping kids develop good money habits. And gaining financial literacy is one of the very best ways to achieve happiness and success. Help your children become money savvy and give them a head start toward financial wellness and personal freedom.