By Susan Davis Gryder 2015-01-06 17:23:42
Learn some age-appropriate ways to help kids and teens gain financial literacy. TODAY’S KIDS sure know how to spend their money—and yours. But do they know how (and why) to save it? Do they understand the value of the iPod they carelessly left in their pants pocket and threw in the wash? Can they appreciate the very basic costs of running a household, from electricity to hot water to health insurance premiums? If kids don’t learn these financial fundamentals in their youth, imagine the rude shock they’re in for as adults, confronted with the dangers of debt, the complexity of taxes, the management of loans, the need to save for emergencies and luxuries, the importance of making sound investments and so much more. Many of you can imagine this shock, because it’s one you’ve faced—and may still be facing—in the absence of a good grounding in personal finances when you were in school. And money matters seem only to have gotten more complex with each passing year. Even garden-variety personal finance can be confusing. Do you understand your FICO score, why you need private mortgage insurance or what a Roth IRA is? (Turn to “Financial Lingo for Fledgling Financiers, page 34, for some of these definitions.) To ensure that the next generation has the skills and understanding to manage its money wisely, parents and educators should be looking for ways to improve the financial literacy of children and teens and help them prepare for life as fiscally responsible adults. Financial institutions have a vested interest in this type of education, too: Educated consumers will save more, invest more and become better customers for banks and brokerages. Plus, banks can get a public relations boost by supporting financial literacy initiatives. Following are some suggested approaches and activities for teaching your children (or grandchildren) important financial concepts. Saving Is Elementary Financial literacy can begin with the very youngest kids. Parents of preschoolers can talk to their kids about making choices between spending money now and saving it for something of greater value. Young children can learn this lesson firsthand by being encouraged to put a portion of their tooth fairy rewards and birthday money aside to contribute toward the price of an expensive toy or—even better—a gift for a beloved parent or grandparent. By the time they reach second or third grade, many young tweens can identify items they really want—an iPod, a giant Lego set, a bicycle, a telescope—that may come with a hefty price tag. Such desires present the perfect opportunity to involve a child in saving and decision-making activities. Consider starting with a modern “piggy bank,” such as the Moonjar Money Box (www.moonjar.com) or the Money Savvy Pig (www.msgen.com), which feature divided compartments to help kids designate money to share, spend, save and invest. You and your kids can create your own versions, too—simply decorate and label clear, easy-to-open, lidded jars. Such separated savings banks can open the door to great discussions not only about long-term savings goals, but also about the importance of making charitable contributions to causes that connect with your kids. Demystify Money Management Elementary school is a good time to begin teaching kids about more advanced concepts about basic money management. It’s natural for many parents to want to protect their children from conversations about household finances, especially if they are sources of even moderate stress or strife. But money matters shouldn’t be treated as a big mystery, rather as something that can be discussed practically and pragmatically, without generating anxiety. When you discuss the financial decisions you’re making and review purchases that must be delayed until money is saved, you show your children that financial planning and decision-making are natural parts of life and adulthood. Experts also recommend showing your school-age children some of your bills or bank statements, and discussing what these mean. If you are readying to make a major purchase like a car, appliance or a house, talk about how you plan to pay for it, and the factors that go into your purchase decision. When appropriate, use this opportunity to further their fiscal education, such as by discussing the financial impact of different priorities and compromises and getting their input. You’re about to buy a new minivan—what’s the price of the built-in DVD player that comes as an extra option? What are the implications of that cost—is there a different way your family could and should spend that money instead? While family discussions about money are valuable, they shouldn’t be treated casually. Think about how you want to involve children in this conversation. You may have to tread carefully, especially so that you stay reassuring and positive and not let any of your own anxieties about money spill over to your kids. Remember the goal is to help them become comfortable with the realities of family’s financial decisions—not apprehensive. Don’t Go It Alone If you’re not sure how or where to begin teaching your kids about money management, take comfort in the fact that you are not alone! In fact, there’s been such demand for expert education that a wide variety of organizations have developed numerous online tools, games and other informational resources that are designed to make learning about finance fun and engaging, while providing parents with some guidance about the best approaches in teaching financial concepts. One good place to start is TheMint.org, which offers resources for both parents and teachers about helping children learn about budgeting, credit concepts and even the stock market! Many national bank chains and other financial institutions offer online educational tools targeted to kids. Among these is the Great Piggy Bank Adventure, created in partnership between T. Rowe Price and Disney and available as a mobile app or a computer-based video game. Mass Mutual is another financial organization that offers a mobile app developed specifically to teach children about saving. Such tools are usually geared to varying age groups. Sesame Street, for example, offers the “For Me, For You, For Later™” toolkit, developed with PNC Bank’s PNC Grow Up Great® program (www.sesamestreet.org/parents/save/foundation). In addition to a downloadable parent/ caregiver guide, it features a children’s activity book, play money and an original DVD to teach young children about saving, managing money and making good financial decisions. Slightly older kids will relate more to the “It’s My Life” program from PBS Kids’ (http://pbskids.org/itsmylife/money), which offers such tween-friendly tools as a printable money journal, games and discussion questions. A Little Green for Your Teens As any parent of teenagers knows, money takes on special significance in middle and high school. By the time children enter adolescence, they have considerably more financial wants—and genuine needs, too. Many find jobs to help them fund the extras that they desire, as well as start saving for bigger-ticket priorities, like a car or college. They also tend to have a better understanding of some mathematical concepts, which makes the teen years a good time to teach the power of compound interest and long-term savings. Still, experts find that most American teens lack a basic understanding of financial concepts. The Pew Charitable Trusts, for example, reports that less than 20% of 16- to 18-year-olds know what a 401(k) plan is, and only 32% understand how credit cards work. MoneyWise.org offers a series of training modules (available in several languages) for parents of teens, designed to guide parents in discussing personal finances with their adolescent children, teaching them about budgeting, banking and credit. Investor.gov features several useful online calculators, including one that allows kids (and parents) to see how compound interest works over time. Adolescence is also the right time to ensure your kids develop banking skills. Many banks have so-called “teen accounts”; these are usually tied to parents’ accounts for easy money transfer and parental monitoring. Such teen accounts often offer debit cards, online bill paying, checks and mobile apps—all aspects of adult banking that teens should learn how to manage before they are on their own. The teen years are also the right time to have frank discussions with kids about college plans—specifically, how to pay for them. In the not-so-distant past, many parents could expect their children to help cover some of their college costs through savings from summer jobs and birthday money. Today, with the high cost of higher education, this might seem like a drop in the bucket. Still, it’s not inappropriate to give your children an expectation that they will be responsible for some of their college expenses, such as books, entertainment and transportation. By ninth grade, children should be aware of how you plan to pay for college and the resources that are likely to be available. Schools Get on the Financial Bandwagon Financial education is getting new emphasis in K-12 school settings, as well. While most of this takes place at the secondary school level, one organization, Jump$tart Coalition for Personal Financial Literacy, has created national financial literacy standards for elementary grades; these are available online for schools to use. Bizworld, a nonprofit organization dedicated to promoting entrepreneurship skills to youngsters, also provides classroom resources on financial skills that elementary school teachers can use to plan lessons. Indeed, more states are requiring financial literacy classes as a condition of high school graduation. The Council for Economic Education reports that 17 states now require personal finance education as part of graduation requirements. For most (and for now), the subject can be integrated into classes such as math, science and home economics. But four states—Missouri, Tennessee, Utah and Virginia—actually require a stand-alone personal finance class. In Virginia, for example, a course in economics and personal finance emphasizes real-life situations to teach skills. Students learn how to buy a car, including evaluating their wants/needs, deciding how to pay; “applying” for a loan and so on. In Fairfax County, one of the largest school districts in the state, all eighthgraders participate in a financial literacy education program that culminates in a finance “camp” at the local Junior Achievement Financial Literacy Center. The center features a miniature city, where kids can “buy” a car or a house, put together a budget and pay taxes. Virginia’s commitment to students’ financial education goes all the way to the top: Each year, the governor’s office sponsors the Governor’s Challenge in Economics and Financial Skill, a quiz-bowl-type team competition. In 2014, 3,000 schools across the state participated in the program, and 161 kids qualified for the day-long championship. There are more and more resources being developed for schools and teachers who want to develop curricula or get assistance in incorporating financial literacy into existing classes. If you know a teacher with this interest, suggest they start by looking at the website of their personal bank. In addition, they can tap several other nonprofit organizations and government sources, including Chalkboard Kidz, Crash Class (from the National Financial Educators Council), $ave USA (from Junior Achievement) and the FDIC’s Money Smart for Young Adults; all of these programs are available online. Late last fall, Flocabulary, a producer of educational videos that use hip-hop music, introduced a series about teaching financial literacy through music. Flocabulary worked with the City University of New York and the New York State Higher Education Services Corporation to develop the program and help address the teen financial literacy gap. The video series includes classroom activities and is available as part of a Flocabulary subscription. Smart Kids, Smart Spending What’s the bottom line when it comes to financial education? Parents and schools must work together to prioritize financial literacy among children. It’s as vital as reading comprehension and health education—and arguably more so than many other school subjects when it comes to ensuring that children gain essential skills, knowledge and experience they need to navigate adulthood. While there are more tools than can be easily counted that have been designed to help kids learn about personal finance, look to those that provide strategies for linking concepts to real-world situations. At the very least, children should be aware of how their parents manage household finances and get a taste of doing so themselves through earning, spending and saving their own money. Money matters can be a scary topic for many parents! If we lack confidence in our own fiscal management skills or make poor decisions, we don’t want that insecurity or those mistakes exposed to our kids. But does shielding kids from these realities help them or hurt them over the long haul? Be mindful that building these skills in your children can be a gift they benefit from again and again in their future, adult lives. MAKING ALLOWANCES for ALLOWANCES It would seem that there are as many approaches and philosophies to providing children with an allowance as there are parenting styles! Some parents tie weekly or monthly allowance amounts to age, grades in school, performance of household chores or some combination of all above. Other parents offer no allowance at all, or none until a child reaches adolescence. Parenting and financial experts weigh in at every turn, too. Some recommend separating an allowance from regular chores, because everyone in the family is expected to pitch in without getting paid. In this camp, an allowance is considered a necessary tool for kids to learn to manage money. But others support the idea of paying an allowance in exchange for chores (and deducting from that payment when tasks aren’t completed) as a good way to instill an understanding of how money is earned. How much should you give? Again, approaches vary. Some parents base the amount on age or school grade or set a completely arbitrary number altogether. Others might allot more, but then stipulate that expenses related to social activities, entertainment and even clothing be covered in this fund—and expect them to be managed appropriately by the child. A growing number of parents use allowances to teach their children how to navigate money in the electronic age. The “no-cash allowance” approach lets kids track their allowances electronically through apps or a real bank account, learning how to manage deposits and debit transactions. Unsure of how to handle this issue or rethinking your current strategy? A simple search on your Internet browser will reveal more advice than you could ever imagine. Make a little time to consider a variety of different options. Once you choose an approach, be sure to explain it to your children, rather than presenting it without comment. It’s a key part of your ongoing commitment to building their financial literacy. Susan Davis Gryder is a freelance writer in Silver Spring, Md. Photography by iStock/BananaStock/Wavebreak Media/Digital Vision/Jiunlimited.com.
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