Financial Literacy for your Child Starts at Home


child and money

We have all heard children need to be taught how to be smart with their money at an early age. But how exactly do we do so?

Children, for the most part, do well when designated teachers explain things to them because in their eyes, teachers are the experts. But as anyone with children knows, with our ever-changing role as parents, the unique type of authority we command can provide complications in certain educational areas. As children reach the various ages of “I know everything” or if they are simply too young to be fully interested in “boring” things, parents have to walk fine lines in hopes of influencing the learning andretaining of information on how money works. Once this knowledge is retained, children also need to have the ability to utilize that knowledge when needed without the constant assistance of the teacher.

The most powerful way to influence financial literacy children will learn, retain and utilize and is by implementing the following four tools:

  • Education
  • Examples
  • Environment
  • Experience

Education:  The typical definition of education we have been conditioned on is not what is being referred to here. The education I am referring to is simply the practice of teaching.  Synonyms for this would be upbringing and instruction.

How are you, the parent, educating/giving instruction and guiding in the daily upbringing of a financially literate child?  Are you utilizing teachable moments that are age appropriate? When your child receives money for his/her birthday, are you reminding them of the Nintendo DS they asked for while at the store a little while back and then helping them plan/save for it? Or is the money simply theirs to do what they want with, because after all, “Christmas is around the corner” and you tell yourself you’ll just buy what they want at that time?

There will be many opportunities for teachable moments in a child’s life:  when their toys break and need to be replaced, when they receive birthday/Christmas money, when they want to join various sports organizations that cost money, when it’s time to talk about their first car, saving for prom & saving for college. The two smartest ways to give fuel to these teachable moments is to provide both the education in a non-overbearing manner and provide a “duties based monthly allowance” system that compensates them monetarily for housework, errands and grades etc.

Again, sit down and talk with them at pivotal financial points in their lives without having things like “daily money classes” because this will turn them off to these messages. As well, it goes a tremendously long way to not only teach your children about money but to also teach them the value of hard work and appropriate compensation for it.

Examples:  A lot of parents believe that after utilizing the appropriate financial education (in the first section above) that their kids now have a positive relationship with money. You’ve given them allowance for doing chores. You’ve given them a piggy bank to save portions of that allowance. And if they’re old enough, you’ve even taken them to the bank to open a minor savings account or checking account.

But is their mom/dad using credit cards? Are they paying on and stressing out over a car note that’s due each month? Are they borrowing from friends and family members and having heated financial arguments? Are they getting hounded constantly by their landlord for overdue rent?

If so, the answer is this: your kids have a terrible relationship with money! Never for a second believe kids learn more from being told rather than shown, as we were all kids ourselves and can relate.

Focus less on the instructions and ramp up your examples in your own lives. Your kids will always learn more from mom and dad doing vs. mom and dad speaking.

Children are watching you, they are listening to you and one day, they will emulate what you have done in their presence.  Knowing that, it’s imperative you live the financially literate lifestyle you want them to duplicate.  This means allowing your children to see how their parents save, showing them the difference between being frugal vs. cheap not just in theory but in practice, and showing them what the family has been able to obtain through delayed gratification.

The truth is, as of right now, until you utilize positive examples in your own life, your kids are on track to be financially just like you.

Environment:  The overall environment a child grows up in, not just what their parents directly teach them, will shape their thought process of the world.  When children are young, their point of reference is where they live.  Their home life is what they consider “normal” and until they are older, they naturally assume people live in a similar way.

Knowing this, what messages are you giving in their (home) environment?  Does every room have a T.V., each bigger than the other?  Is your closet filled with clothes that have tags, or so many shoes you are not even able to wear them all? What is the level of materialism in the music they hear with on the way to school? Does your child have their own room and all the newest gaming systems?

This is an environment filled with excess and materialism.

As well, we must stop using the term “I just want my children to have more than what I had”. What’s the purpose of that phrase? And more importantly, what are we teaching our children?  That they deserve more crap just because?  As parents, it is our job to give them what they need, not only what they want, and to teach them the difference between the two categories.

Before you get defensive, it’s not a question as to whether or not you can afford it (or really the monthly payments on “it”), it’s about whether or not it’s needed and will progress your child’s financial value system and their overall relationship with money.

Experience:  This is the final tool in your toolshed for a reason. The hope here is that true financial learning has taken place throughout the years as we (the parents) provide our children with proper & unobtrusive Education at pivotal points in their lives, have lived our own lives with positive financialExamples, and provided an Environment that has allowed your children to foster the value system you’re hoping for.

The final level, Experience is what happens once the education they’ve received meets life and they attempt to handle financial situations that may have not gone their way.  When they get out and make a financial mistakes (and we know they will), hopefully it’s not a failure that causes permanent financial harm and they are able to look back at a lifetime of ExamplesExperiences and a positive Environment.  These things will come together for them as they remember how you, their parent, their role model, their first and most powerful example, handled those tough financial situations in a similar fashion.

This is how TRUE learning and retention takes place.

We all make mistakes, mistakes are how we learn.  If we learn from those mistakes, we put ourselves in a position to move forward with those same life experiences and examples to teach and show others.  It’s our mistakes and subsequent victories that will help the next generation.

It’s never too late or too early to implement the Four “E’s” of children’s financial literacy.  You may not even have your own children yet; you may be the Aunt, the Uncle, the Grandmother or the neighbor.  Regardless of your title, your influence to a young child is powerful.  How will you utilize this power and influence?

(Re-blogged from Brass Knuckle Finance team lead Krischa Esquivel at the M.I.O. blog)

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