Teaching Financial Literacy to Kids

Financial literacy focuses on the knowledge and skills you need to make effective and informed money management decisions. Personal financial literacy encompasses a range of money topics, from everyday skills such as balancing a checkbook to long-term planning for retirement. While literacy – the ability to read and write – is a fundamental part of the education system, financial literacy is often left out of the equation. In the U.S., only 17 states require high school students to take a course in personal finance.

Although there’s a movement to include more finance-related coursework in elementary, middle and high school settings, parents and guardians are the primary educators when it comes to teaching children the skills they need to develop a strong foundation for life-long financial competence. Many adults, however, avoid talking to kids about money – often because they lack confidence in how they've handled their own finances. This is unfortunate, because adults have two things that children do not when it comes to finances: experience and perspective. You don’t have to be a financial rock star with a perfect track record to teach your child personal finance basics and get the money conversation started. If talking about it highlights that your own finances could use some organizing, use the conversation as an impetus to get them in order and be a positive role model.
 
Like other tricky topics, money is something that kids will hear about outside the home – at school, sports practice, friends' houses and on social media. While this may sound harmless (what could they possibly hear that could be that bad?), kids can get the wrong message about money if peers are their only information source. For example, your child might hear a classmate say that rich people are lucky. If your child believes that wealth is a result of luck, what motivation will he or she have to handle money responsibly? It's important to clarify at a young age that most wealth is not a result of luck – most people have to work hard and make smart decisions to "get rich." Even if you don't know the difference between a defined-benefit and defined-contribution retirement plan, you can provide accurate information, introduce ideas, spark interest and awareness, and help empower your children to take control of their financial lives. (For more see, 3 Simple Steps to Building Wealth.)
 
By teaching your kids about money, you help them discover the relationships of earning to spending and saving. In doing this, kids begin to understand the value of money. This financial literacy can begin at a young age with simple money concepts such as counting coins and making change for purchases. Older children can learn about savings accounts, balancing a checkbook and creating a personal budget. The key is to teach a concept and let them try, even if it means a little extra time in the toy store while your little one painstakingly counts out coins from the piggy bank. (For related reading, see How to Teach Your Kids About Money.)
 
This tutorial introduces key financial concepts that are appropriate for young children, including tips for getting kids to think about and understand the money topics. For information directed toward older kids, check out Teaching Financial Literacy to Tweens and Teaching Financial Literacy to Teens.