Just 24 percent of millennials demonstrated a basic understanding of financial concepts, according to a recent PwC study.
Finance is hard to see. And as a result, finance can be hard to understand – especially for kids! Let me explain. My sister goes to the grocery store with her debit card. She swipes the card and leaves the grocery store with the card and a bag of groceries.
From her son’s perspective, it seems like a sweet deal! It doesn’t look like my sister gave anything up to get the groceries. Her son doesn’t see the exchange; he doesn’t see that money left my sister’s bank account and went into the shopkeeper’s bank account. He doesn’t see that my sister first earned the money after she provided services to hospital patients. If my sister used a credit card instead of a debit card, the exchange would have been even more confusing! Now a credit card company is lending money to my sister?
We Have Financial Problems
Without understanding finance, there are bound to be problems. According to a study from PricewaterhouseCoopers, of the millennials who were tested on financial concepts, only 24% demonstrated basic knowledge. Of the millennials who were asked about their ability to repay their student loan debt, 54% expressed concern. Moreover, according to a survey from the American Psychological Association, money is a leading cause of stress in the United States.
How can we prevent kids from having these issues as adults? One way is through education. In fact, it’s best to start teaching kids finance at a young age. According to a study from the University of Cambridge, basic financial behaviors are formed by age seven.
4 Ways to Teach Kids Finance
1. Use physical money at the store. Bring a small amount of cash to the store for your kids to use. With your help, let them pick out an item and go to the cashier to make the purchase. This method allows kids to participate and watch the transaction take place.
2. Create opportunities for kids to earn money. You may not want to give your kids money for regular household chores (ex. making the bed, cleaning their room, etc.). However, you could set up ways for them to earn money through more challenging tasks. For example, you could give them money in exchange for cleaning out the garage. That way, kids can see the relationship between work and money.
3. Allow kids to manage money. You might give your kids an allowance, gift them money on holidays or birthdays, or have them earn money through tasks. Let them divide this money into three jars: one for spending, a second for saving, and a third for donating. This strategy allows kids to build budgeting skills. Also, you’ll likely find that kids value their own money more than they value yours.
4. Talk about money. Tell your kids how you earn money and how you spend it. Explain how certain items are more essential than others. Point out the different prices of goods and services while you shop. Having these types of conversations will help kids understand the financial world around them.
A Helpful Financial Resource for Kids
Explaining finance in a kid-friendly way can be challenging. To help, I’m creating a book series that teaches kids finance through story. The books also include lessons, questions, and activities to bring finance into the real world. My goal is to help kids grow up with less stress and more freedom—freedom to spend time with family, travel the world, create a business, donate to charities, and build a life on their own terms.
Written by Maureen Buff for the Foundation for Economic Education ~ December 18, 2018
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