In today’s uncertain economy, with 56 percent of Americans reporting they do not have savings to cover a $1,000 emergency expense, talking about money with your kids and building a strong foundation for financial literacy is more important than ever. While it may seem like a daunting topic to discuss with a preschooler or an elementary-aged child, it is never too early to start. Studies show that children with savings accounts are six times more likely to go to college and four times more likely to own stocks as young adults.
Here are some ways to educate kids on the five key components of financial literacy, as outlined by the Financial Literacy and Education Commission.
Create opportunities to earn money
No matter their age, create opportunities for kids to earn money. For elementary-aged kids, select some chores around the house that you are willing to pay for or help them with a bake sale or lemonade stand in the summer. For middle schoolers/high schoolers, determine what service they can offer (yard work, babysitting, dog walking) and help them market themselves by talking with family, friends and neighbors or by leaving flyers in neighbors mailboxes. Some teens may also be able to get certified to referee sports games in their local community.
Save and invest
When it comes to saving, teach kids that creating and sticking to goals is the key to
success. Work with your kids to decide whether they will save a percentage of what they earn or help them set a goal to save a certain amount each month. As an incentive, consider offering a matching contribution by adding 50 cents for every dollar your child saves. Once your child starts to save a little money, take them to the bank and open a savings account for them. Encourage your kids to ask questions about how savings accounts work and how they can earn interest.
Once your child starts to understand the saving process, engage them with some simple activities to understand the power of investing. Investing is a powerful tool that everyone should understand and it is never too soon to learn the basics. Have your child pick a few brands that they like such as a favorite snack, store or food establishment and show them how to track the stocks. Consider making it a family game where each member picks a few stocks to track for a month.
Protect your money
Set a good example for your kids by keeping all of your accounts and investments organized. Review monthly saving statements of your child’s account with them and help them create a system to track the money they are earning, spending and saving.
It is also a good idea to talk to your kids about how to protect themselves against scams. Explain the different types of scams that can affect personal bank accounts, what terms like fraud and phishing mean and encourage them to talk to you if they receive any strange texts or emails with links. Many kids have email accounts at an early age as a result of video games, and many popular video and computer games take forms of payment. Be clear with your kids about what they are and are not allowed to purchase online and set spending limits.
Spend wisely
A budget is a great way to control spending and save money. One of the easiest ways to do this with kids is to follow the three (or four) jar system. To implement this, have your kids total all their money and then divide it into categories. Categories can include spending, saving, giving and/or investing. Put the money in jars or containers, so your child can see the money accumulating. Once your child has enough in savings, deposit the money into your child’s savings account.
Teach the principles of borrowing
While it may seem counterintuitive to teach your kids about borrowing while trying to build good financial habits, it is important they understand how borrowing works and how to get out of debt. This is a lesson better learned at home than later in life from a credit card company or a debt collector. To teach the basic principles, consider loaning your kids money from time to time. In order for this to be successful, make sure the amount is not too much and create a repayment schedule. Sit down with your child to create the schedule, have them sign it and update the schedule every time they make a payment. Consider adding a small amount of interest if your child is late on a payment. For older kids and teens, sit down and have more detailed conversations about interest and explain how real-life loans work and interest rates associated with credit cards.
For additional financial literacy tips and courses tailored to specific ages, visit Banzai, an award-winning financial literacy curriculum. To date, Atlantic Union Bank, in partnership with Banzai, has served 175 schools, 180 teachers and educated close to 6,000 students.
Nathalia Daguano Artus is an SVP and director of community development and reinvestment at Atlantic Union Bank.
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