Financial Literacy for Kids - 5 Simple Approaches
KEY POINTS
Financial literacy taught at a young age will pay dividends for a lifetime.
Each child is unique and should be given the opportunity to learn in their optimal learning environment.
It can be fun, engaging, and empowering for a child to develop a long-term healthy relationship with money.
Start … Now !!!
It is never too early to start learning about money and how to manage it wisely. Financial literacy is an essential skill that empowers an individual to make informed financial decisions now and in the future.
A strong foundation of financial knowledge and related skillset can facilitate a child’s ability to develop a healthy relationship with money, set achievable goals, and navigate the complex financial landscape.
We have highlighted 5 common approaches to achieving financial literacy that can put your child on the path to financial independence. Find the approach that works best for your child or explore multiple approaches simultaneously.
Financial Literacy
Top 5 Approaches
1 - Budgeting Approach
This approach requires the child to receive a recurring allowance that is earned based on a set of clearly defined tasks (e.g., cleaning, organizing, gardening).
The child gains an appreciation for the value of money when they are required to earn it. Once earned, decisions must be made regarding how to make allocations towards savings, charity, and discretionary spending. Wisdom and patience can be developed through the experience of delayed gratification.
The process of developing a budget forces the child to make tough choices and weigh the various trade-offs. As they grow, the instilled discipline to develop and maintain a budget will become an invaluable skill that will pay dividends in the future.
2 - Participation Approach
The budgeting approach above is an invaluable tool; however, it has limitations. It restricts the child’s experience to their finite financial resources. Therefore, it is often beneficial to overlay the budget approach with direct participation in select financial dealings of the parents.
Real world tasks like buying groceries, pumping gas, and making deposits and withdrawals from the bank can be truly eye-opening experiences.
The cost of the products and services can spur opportunities to discuss all things budget related. Such may include how income potential varies by job, the value of comparison shopping and how to do it, the difference between needs and wants, and more.
The simple act of engaging in real world experiences impacts scheduling, prioritization, and requires a noticeable time commitment. This will instill an appreciation for the time and money required to manage the household budget.
The payment for products and services is typically done by credit card, debit card, cash, or check. Each transaction provides an opportunity to explain the differentiating factors for each type of payment. The discussion can branch out into a broader discussion on topics that may include interest rates, credit reports, and more.
3 - Role Model Approach
Children need a positive role model when it comes to their relationship with money. A parent can be a great role model in many of life’s areas but fail to provide a positive role model experience with respect to financial literacy.
Parents need to make a conscious decision to be a positive financial role model.
Some may consider this non-applicable or impossible during times of financial distress. However, such periods may provide an excellent opportunity to illustrate the ability to prioritize needs and set goals for the betterment of the family.
A child can be highly influenced by observing how their parents approach budgeting, saving, investing, prioritizing competing goals, and managing debt. Their habits can be further impacted if such topics are discussed, at some level, in an open and inclusive manner.
4 - Entrepreneurial Approach
This approach focuses on engaging the imagination to come up with a creative idea while exercising the entrepreneurial spirit. The benefits can be profound.
Parents can encourage their child to start their own business. The type of business will be influenced by many things including the child’s age, interest, skillset, and resources. The venture may include a lemonade stand, handmade crafts, babysitting, tutoring younger children, YouTube channel, and whatever other great ideas your child comes up with.
The process can provide a hands-on approach to learning the concepts related to risk taking, hard work, perseverance, planning, organizing, problem solving, budgeting, managing cash flows, earning an income, controlling expenses, teamwork, and customer engagement.
The concepts related to savings, investments, and the time value of money can be introduced as the venture generates a profit.
5 - Educational Approach
Financial educational programs for children focus on teaching the fundamental concepts and skills related to managing money, making informed decisions, avoiding financial pitfalls, and developing healthy financial habits.
The programs and resources are designed specifically for children and may include interactive games, educational books, and online platforms that teach key financial concepts in a fun and engaging manner.
They are designed to be age appropriate for each developmental stage. Such considers the cognitive abilities, attention spans, and interests at each stage.
The learning process can develop practical skills related to budgeting, saving, comparing prices, and understanding the role of financial institutions. Critical thinking and problem-solving skills can be encouraged by analyzing and evaluating different options, making informed decisions, and considering the long-term impact of such decisions.
BOTTOM LINE
Financial literacy is a core concept that parents need to teach their children. Such concepts are not always well covered or taught through the traditional educational system.
Each approach above should be carefully considered and tailored based on the specific child involved. Multiple approaches can be applied simultaneously as they reinforce the same financial literacy objectives related to achieving a long-term healthy relationship with money.
