How to Teach Kids About Money? April is National Financial Literacy Month!

Piggy BankIn the US, National Financial Literacy Month is celebrated in April in an effort to highlight the importance of financial literacy, as well as to teach citizens of all ages how to establish and maintain healthy financial habits.

The History of National Financial Literacy Month

In 2000, The National Endowment for Financial Education introduced Youth Financial Literacy Day. In 2003, the United States Senate designated April as Financial Literacy for Youth Month. And, in March 2004, the Senate passed Resolution 316 that officially recognized April as National Financial Literacy Month.

Since 2006, the National Foundation for Credit Counseling (NFCC) has emerged as the leading organization promoting Financial Literacy Month, releasing an annual survey on financial education and honoring the winner of its national financial literacy poster contest, Be Money Wi$e.

How to Teach Kids Financial Literacy

Even the youngest children will benefit from an age-appropriate discussion about earning and managing money. Of course, this is an ongoing conversation. And, the key is to tailor the lesson to the age of the child, moving on to more complex money issues as the child matures.

Not only is learning about money a crucial life skill, it’s also a relevant way to expand math skills!

Monopoly money

Understanding exactly what money is (and where it comes from) is the first step. The following conversation actually occurred between a business associate of mine and her daughter, when the child was about six years old:

Mom: “I’m sorry honey, we don’t have the money for that today.”

Daughter: “Why don’t you just go to the money store and get some more?”

Once she was done chuckling over her daughter’s description of the local bank, this working mom had to think quickly. Did her daughter truly not understand where money comes from? Or how you earn it?

The fact is, although it seems intuitive, most very small children have no real idea of how money is earned. Offering an allowance for weekly chores is one easy way to instantly explain the concept (and get the trash to the curb each Tuesday!).

Educator’s Note: This is a perfect opportunity to teach coin and bill recognition and values, counting money, and even the lost art of making change. Counting money of one denomination requires basic math skills learned in primary grades, and then being able to add different coins and bills together comes next.

But, I need it, mom!

Of course, once the piggy bank begins to fill up, your child is ready for the next lesson: Need versus Want. We need to pay the mortgage. We want to go to the movies. This lesson often takes quite some time to get across.

For older children, budgeting in order to afford some of those “wants” is a timely lesson which coincides with the covetous phase so prevalent during the pre-teen and teen years. Creating a list of expenses (insurance premiums, car payments, utility bills) and comparing it against household income is a real eye opener for most kids. Who knew that the cable bill was so high or that cell phone services cost that much?  And that dreaded oil bill! Sometimes it’s a wake-up call for parents, too!

Educator’s Note: Learning to create a proper budget uses critical math skills such as the ability to compute using fractions, decimals, and percents, the difference between positive and negative integers, and timelines. It also answers the age-old question, “But when will we use math in real life?”

Future Shock

A classic quote comes from the hit show Friends. Upon opening her first paycheck, a bewildered Rachel wails, “Who’s FICA? And why does he get all my money?”

Many teens with part-time jobs may have the same reaction without a little advance preparation. Today’s teens have significantly more disposable income than in previous years and they should become intimately acquainted with the financial concepts of saving and goal-setting.

The object of your teen’s desire – new boots, concert tickets, a car – can all be achieved with regular deposits to a “Wish Fund.” Savvy parents may want to contribute as well, in order to encourage saving.

Teens will also need to learn the difference between a scholarship, a grant and a student loan, the impact of a high/low credit score, and the beauty of compound interest.

Educator’s Note: Creating amortization schedules, learning to reconcile a bank statement, and even crafting income projections are all exceptional business skills. Learning to complete these tasks may even spark an interest in a career in accounting or business management!

By teaching children from a young age onward about money management, they will be better prepared for a lifetime of financial success. So, sharpen those #2 pencils…

Educating Delaware for over 30 years! Back to Basics Learning Dynamics is the undisputed leader in 1-on-1 tutoring in Delaware and southeastern Pennsylvania for over 60 subjects, as well as SAT, ACT and Test Prep, translating and interpreting in 16+ languages, educational testing and more. For more information about Back to Basics’ educational services, please call us at 302-594-0754.

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Photo by graur razvan ionut and FreeDigitaPhotos.net.

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