When it comes to teaching your kids about money, one useful model is a successful financial literacy program.
Effective programs can introduce middle- and high-schoolers to a variety of concepts, and help them understand the skills necessary to be financially successful adults.
Unfortunately, not every school has a financial literacy class. “Teachers have a lot of responsibility to meet the requirements of basic curriculum,” says Susan Beacham, founder of Money Savvy Generation, a personal finance education company. “Even important supplemental curriculum needs to be weighed, and because there’s only so much time, money education sometimes falls to the bottom of the list.”
If your schools don’t have such a program — or if you’d like to take an active role in your child’s money education — here are a few strategies from financial educators that can pay off at home.
Keep lessons relevant
Financial educators understand that people are most receptive to messages when they apply to them at that point in time. “If I want to talk about more than 10 different ways that a college student can repay their loans, doing that freshman year would probably not be useful,” says John Pelletier, director of the Center for Financial Literacy at Champlain College. “If I sit down with the same group of students and it’s senior year, they’re going to soak it up like a sponge.”
Of course, sometimes people need to think very far ahead — for retirement, for example — but when introducing concepts to kids, you’ll gain the most traction if you match them to an upcoming life event. For example, your nearly 16-year- old daughter might be ready to learn about car insurance, because she will soon be eligible to get her license.
Use everyday situations
Whenever possible, money educators try to re-create real-world situations in the classroom, such as having kids buy groceries for their families, or even taking a field trip to a bank. At home, you’re in the best position to take advantage of real-time opportunities.
“When you’re in an experience, whatever it might be, try to use that opportunity to impart a lesson,” Pelletier says. For instance, if your child says he wants to buy a new video game, use that as a way to teach him about saving for something over time.
When you go to the ATM, take your child with you and explain different types of accounts and how interest rates work. When you buy something with a credit card, explain that you’ll have to pay the money back at the end of the month.
The more you can narrate everyday life as it happens, the more your child will learn in a real-world setting.
Give them hands-on experience
“I know one high school educator who teaches a personal finance class that, every year, uses the tax form and does his taxes,” Pelletier says. “He goes through it, and they’re like, ‘Wow, that’s all you have after you pay your taxes?’ So it’s incredibly impactful.”
Beacham once took 63 second-graders to a McDonald’s shareholder meeting. “It was absolutely fantastic, because we prepared those kids, and it was a way of explaining investing to them,” she says.
Let smaller children pay for things with their own money. Have older children organize and run a bake sale, which requires budgeting for expenses and setting prices for goods that will cover costs. Have high schoolers create and manage a mock post-college budget.
“Those kinds of things in the curriculum are exhausting to pull off, but most effective,” Beacham says.
The more your children can try their hands at things — and make mistakes — the better prepared they’ll be later.
It may seem old-school to teach kids about checkbooks and how to balance them, but financial education programs are still doing it. Why? Because abstract concepts are harder for the younger set to grasp — and you have to start somewhere. “In the early elementary grades and sometimes in middle school, we’re still talking about checkbooks, not because we think a child is going to use a checkbook, but because it’s a way to add and subtract and tie that to money,” Beacham says. “This is a cumulative lesson. You start with very concrete things like checkbooks and balancing and writing things down and keeping track, and those lessons evolve all the way to Bitcoin.”
The same goes for physical currency: You may not handle cash much in your adult life, but to start kids off with money learning, actual cash and coins are easier to work with than digital totals.
Talk about it
Many parents are reluctant to talk about their own finances, particularly if they’ve made mistakes, or they don’t feel they have a good handle on the situation. But research shows that kids look to their parents first to understand how personal finance works, and you may be the best source available for them.
For example, you might talk to your children about how you got into credit card debt when you were younger, what you did to climb out of it and what lessons you learned along the way. Or you might explain how some late payments affected your credit score, and what you did to help repair it.
If students aren’t learning these things in schools and parents aren’t talking about it, Pelletier says, “how are kids not going to make the same societal mistakes in the next generation?”