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Teaching Kids About Money

This article was written by in Financial Literacy. 11 comments.


Most people who learn about proper money management as an adult learn the hard way. A common thread in stories about personal financial recovery is a journey to “rock-bottom.” Often, a financial crisis is necessary to motivate people to change behavior and learn to be responsible for their financial condition and their path towards improvement. This type of trigger seems to be built into human psychology.

Many recovering drug addicts, for example, didn’t admit they had a problem until their life was so unlivable that they had no choice. The stakes when dealing with financial problems are usually not as high, but the concept is similar, and is repeated all the time.

Learning from one’s own mistakes is the most effective method of education, but the problem is that is requires someone to unnecessarily experience the worst of what life has to offer. Often, these rock-bottom situations could have been avoided, sometimes easily. The cost of losing a house is a high price to pay for learning to evaluate what you can afford before buying, being skeptical of mortgage salespeople, and preparing for economic emergencies.

A healthy relationship with money during formative years can help increase the chances of making sound financial decisions as an adult, avoiding the most damaging situations. I’ll freely admit that like many others, I entered the adult world — after college, job in hand — without knowing much about managing not only money but other responsibilities like maintaining a car. I worked for a distant non-profit organization, spent hours a day commuting, and almost all the money I earned after taxes was required just for my living expenses. My debt increased, and when I was asked to resign, I was living in a bad situation and had no money. I learned some lessons pretty quickly after that.

I seriously doubt having a course in high school dedicated to financial literacy, even if it had been required, would have changed my situation. I was, for the most part, enrolled in advanced courses in high school, geared towards going to college and earning college credits while in high school, with the intent of studying music education.

A macroeconomics course would have been more suited for my curriculum than basic personal finance, but I consider myself anecdotal proof that one can have advanced mathematics skills at the same time one doesn’t stop the tide of debt until its terrors manifest in the physical world. That is despite the concept of debt’s root in basic arithmetic: if you spend more than you have, your financial condition will worsen and you’ll never achieve any level of freedom.

The role of the parents

Parents are the first line of defense against children not entering the middle class as adults. Before children enter school, their personalities have already begun to form, and parents have the biggest role to play in forming that personality. It might be a little young to teach children about money specifically, but guiding children in the right direction in terms of instant gratification is one thing parents can do.

As children grow and attend school, the lessons that stick with children the most are those that are reinforced at home. The parents have a much bigger role than teachers in shaping kids’ approaches to money. Money shouldn’t be treated as a thing of evil, nor should it be worshiped. Money is a tool, only, and we live in a society that expects citizens to work in order to build a future for one’s self, and money is the intermediary method of exchange between work and freedom. At the same time, families shouldn’t emphasize the important of work, because until the reach adulthood, the job of a child is to do well in school and thrive in college if possible.

Economic differences affect these priorities. In some families, teenagers need to work because it’s the only way the family can earn enough to live. In other families, teenagers may want to work if they want to afford some of the luxuries they see their friends experiencing, but parents also have an opportunity to limit the effects of peer pressure.

The best thing parents can do is be great role models with money, even when money is not a frequently discussed topic. What happens when parents aren’t good role models?

The role of the schools

Whether media report that debt is increasing while incomes are decreasing or that on average, college graduates can’t pass a simple quiz about money management, public blame seems to focus on the schools. Most schools lack a comprehensive money management curriculum, and those that offer financial management courses do so to meet state competency guidelines. Some studies show that these classes do more harm than good, so there’s already a question about whether this is the right solution.

Nevertheless, many non-profit groups exist to promote financial literacy education as part of the American school curriculum. Corporations are entering the schools, too, offering their branded approach to financial literacy: Teach kids how to balance a checkbook or bank online, as long as they are exposed to Chase Bank logo (for example) day after day. With teachers not necessarily trained to provide lessons in personal finances, these outside forces are brought in to the classroom as supplements.

Unfortunately, many parents are not in a good position to impart financial lessons to their children, and that’s why blame often falls to the schools. Society expects teachers to pick up where parents fail. And in some way, that’s the only way devastating financial patterns in families can be broken. A few decades ago, college education became much more accessible to the middle class, the working class, and the poor.

Families, particularly those in more recent waves of immigration to the United States, celebrated the first to go to college. This was more than just about a college education; the benefit of a college education was access to better paying jobs and careers opposed to a trade, lifting those children’s later families out of poverty or moving them further in the direction of financial freedom. With this new success in the family, the cycle is broken, and there is positive economic mobility.

The role of the community

While the poverty rate remained essentially flat this past year, middle class jobs are shrinking, being replaced by working class jobs. It’s in no country’s best interest to have a growing section of society unable to break through to the middle class. It’s even more critical at the state and local levels.

When parents are for whatever reason ineffective role models for their children, and schools are focused on what is now considered the core curriculum of science, math, history, and English, more responsibility lands in the laps of the community. Great organizations can pick of some of the slack by offering meaningful role models. Big Brothers Big Sisters is one of the biggest organizations that come to mind. This organization isn’t focused on financial habits, but having a good role model is about more than just the financial lessons kids can learn. And when a kid has very few people in his or her life to rely upon, the impact from an organization such as this can be significant.

As mentioned above, other financial-focused non-profits and corporate programs exist in society to fill in some of the gaps left when parents and teachers are not equipped for breaking a cycle and developing financially capable young adults.

While the best teacher is experience, as many adults have determined for themselves, society would like to believe we’d be better off if fewer people had to learn about money the hard way. The better we can point the next generation in a positive direction when dealing with financial issues, there will be fewer tough lessons such as losing a house, being hounded by debt collectors, or being virtually enslaved to lenders and employers. While a lesson learned from one’s own mistakes is often the most powerful, it’s often better to learn from someone else’s mistakes when possible.

I’ll write more about teaching kids about money in the future. What would you like me to cover? What are your tips for teaching children about money? For those with children, what has worked for you and what hasn’t worked?

Published or updated October 9, 2012. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 11 comments… read them below or add one }

avatar Christian L.

Luke,
I know what worked for my parents as I’ve turned out alright. They made me work for my money. They taught me that money comes and goes (hence currency). They told me it’s possible to make lots of money, but even if you do there’s only so much you have to spend.

I’d like to read pieces on how saying ‘no’ to your child’s every demand for some good (toy, video game, etc.) affects their understanding of money. More broadly, how to raise your child in a consumer society where kids are such a huge market.

-Christian L. @ Smart Military Money

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avatar Stephanie @ Empowered Dollar

Great to see you focusing on this! There are a lot of great organizations out there providing financial education to kids (I’m biased – I work for one!), but as the research has shown, parents have the most influence over their kids money habits.

I’d love to hear your thoughts on how to make money lessons resonate with younger kids. It’s hard to make savings habits fun!

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avatar krantcents

It is never enough to teach you about anything. You need to go out and practice it. Sometimes it is called homework or real life work. I use the analogy of learning a language, if you do not practice or use it you will forget it. Same is true of financial literacy. You need to use it or lose it.

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avatar Ron Lieber

Like anything, I think part of this is simply practice. Give them money earlier than you think they’ll be able to handle it, let them make mistakes with it when the stakes are low, try to make sure those mistakes have consequences, give them more responsibility for buying (all) the things they need as they get older even if it’s your money they’re actually spending, turn over (some of) the family’s budget to them to practice on groceries and vacation planning and so on.

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avatar W at Off-Road Finance

Assuming that the parents have good financial skills, I think the best thing to do is to involve kids in financial decisions. Explain to them why you’re doing what you’re doing, and hopefully they will have some interest. I think many parents are embarrassed to do this because the things they’re doing don’t make much sense analyzed logically.

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avatar Jacob

I agree with this, as schools are a supplement to, not a supplier of, the values that you want to instill in your kids. I plan on putting money in it’s rightful place as soon as possible with my kids. I am actually really excited about this, probably much more so than my kids will be :)

Speaking of teaching financial literacy at home, what are your thoughts on programs such as Dave Ramsey’s Financial Peace Jr. edition?

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avatar Peggy Enquist

Luke,

I could not disagree more with your comment about financial literacy in school, EXCEPT to say high school is too late. I teach the Junior Achievement Course to 5th graders and I’m so disappointed everytime I ask if they’ve had previous classes and the answer is NO!

Regardless, in either 9th or 10th grade I had a full semester class on personal finance and we learned to create a budget, balance a checkbook and even prepare tax returns. Is this needed? Well, let me count the number of 1040 EZ forms I prepare for family who can’t even figure that one out! My extended family has been through multiple bankrupcies, reposesions, collection agencies, etc. Somethings wrong with how we’re doing it now.

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avatar Lori Mackey

Great article! Money can and should be taught K-12th, it’s a life skill that will take that long to figure out. It’s the parent’s responsibility to teach personal finance and the schools should be teaching financial literacy. It’s pretty simple, but everyone makes it’s complicated, so they teach nothing at all. A’s in school will NEVER out perform F’s in finance.

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avatar Valerie

When I was in 7th Grade a million years ago, in Philadelphia, our Math teacher had the local bank come in and talk to us about how checking and savings accounts worked. Along the way we learned how to calculate compound interest (by hand…no calculators then) and simple interest, learning the difference. The bank also supplied blank checkbooks and registers to each student, and at later classes we learned how to write checks by hand, enter them in a register and reconcile an account. My parents also opened a small savings account for me, to which I made deposits from time to time with money saved from my allowance.

When my kids hit high school, I was horrified that they had had nothing like this in Math, and still weren’t getting anything about handling money. I started letting them write our monthly checks for household overhead expenses, credit cards, etc. (I signed the checks after they wrote them and entered them in the register) and to reconcile the account when statements came in.

From this they learned by doing that we never ran a balance on our credit cards (and I pointed out how much we saved in interest charges), understood that we paid monthly mortgage fees, could see changes in our utility bills seasonally, watch what happened to water charges in the summer when we watered, etc. When we nagged them to turn out lights in unused rooms, they could appreciate that it affected our utility costs.

When they got to college, they told me they were among the only ones who knew how to handle a checking account. And to this day, as working adults, they never run up their credit cards, paying them monthly or not buying if funds are tight.

I think schools should start in Jr. High or earlier, as my school did, and in high school they should teach them how to handle income tax returns, and something about various kinds of bank accounts, such as CD’s, savings, etc. and even investment basics. We do little or nothing in schools to teach the abc’s of handling money. Values can be handled within the family.

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avatar Ron Lieber

Valerie, this is really neat. I’m writing a book related to this topic. Could you please drop me a note so I can learn more about what you did with your kids? I’m ron at ronlieber dot com. Thanks…

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avatar qixx ♦1,890 (Half-Dollar)

I find enough competition within my family regarding money lessons. Grandparents, Aunts, and Uncles that tell my son different things than My Wife and I try to teach him. People living paycheck to paycheck making decisions based on monthly payments vs total costs, just others with frequent interaction that make different money decisions than me. Part of the need for actively teaching children about money is due to all the different views of money out there.

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