What is Financial Literacy?
Financial literacy is about understanding how money works, how it is earned, managed and saved. This ability to make sense of all the aspects of money to help you make prudent financial decisions is something that stems from interactions we have with money from a very early age. And given the modern day complexities of banking and technology, it has become more important than ever to start teaching kids about money.
Teaching Kids About Money
In a National Financial Capability Study, the Financial Industry Regulatory Authority (FINRA) reported that nearly two-thirds of Americans can’t pass a basic test of financial literacy. In addition, findings show that, “… many Americans struggle to make ends meet, plan ahead and make optimal financial decisions.”
In order to better prepare today’s youth to make better financial decisions in the future, use these fun, simple and helpful tips. Incorporate them into everyday activities to help teach your kids about money every step of the way.
Ages 2-3: Introduce Money & The idea of trade
Kids between the ages of 2 and 3 may just start to identify coins and dollar bills as money. The best thing to do for toddlers is to start teaching them the names of each coin. A simple game of memory would work. (Closely supervised, of course, to make sure no coins make their way into little mouths).
This is also a great time to introduce the idea of trade. Set up a play grocery store or shop and exchange money for items like at a real cash register.
FUN FACT: Salt has long been used in place of money all around the world. The word “salary” is derived from the Latin word “salarium” the Roman word for “money used to buy salt.” In East Africa, salt was the main currency during the Middle Ages.
Ages 4-7: Money Math & Games
Around 4 years old (pre-kindergarten), begin teaching your kids about the value of coins and dollar bills. Here are some activities to do with your child:
- Coin Combos: Once they have some basic math skills, explain how the value of four quarters is the same as a one dollar bill. Work with them to come up with different combinations that equal a dollar.
- Coin Collecting: Children at this age love sorting and collecting. You can begin to collect a quarter from each US state. Check out www.usmint.gov/kids to learn more.
- Buy Something: Let your child become an active participant in the world of commerce! When you’re out at the grocery store or running errands, let your child count out the money due and hand it over to the cashier.
- Coupon Clipping: Before you head out to the grocery store, have your child help you look for coupons. This is a great time to start discussing the idea of saving money, and your little one will love feeling helpful.
- Couch Cushion Cleanup: Have any spare change in the couch cushions? Have your child help with some living room clean up. When they’re done, have them count the change they found in the couch cushions. You can even let them keep it!
- Jar Jar Banks: Using two jars, containers or cans, label one for saving and one for spending on a treat or toy. An optional third container can be designated for giving/sharing. With money that your children earn through gifts or in the couch cushions, have them divide it between the three jars. Explain what the money in each jar can be used for. If you want, you can label each jar with the price of the toy or treat they want. That way, they can count their money to see if they have enough or how much more they’ll need.
- Games: Let your kids use some of their screen time to play some fun games that will let them test their budding financial literacy knowledge. Check out kids.usa.gov for links to fun money games for kids.
FUN FACT: The proper name for a coin collector is a Numismatist! (Pronounced new-miss-ma-tist.), which translated, means "someone who studies and collects things that are used as money, including coins, tokens, paper bills, and medals."
Ages 8-11: Introduce Budgeting and First Savings Account
Older elementary schoolers and young middle schoolers are ready to start learning about budgeting – how it works, why it’s important and how to stick to one. There’s no better way to teach kids about money then to get them involved in the family spending.
Take them along with you to the store with a budget. Teach them how to comparison shop. Find two similar items and compare bulk amount per cent or cost per pound. Bring along a calculator and task them with adding up each item as you go to stay on or close to budget.
If your child is getting an allowance, now is a great time to help them open their first bank account with the money they’ve earned. Check out PFCU’s Moola Moola Club. Kids 12 years old and younger can open an account (minimum of $50). As members of the club, they can learn about dividends and watch their money grow. They’ll also get the Moola Moola quarterly newsletter.
FUN FACT: Tipping in restaurants, while a common practice in the US, is considered an insult in Japan and some Asian countries.
Ages 12-14: Needs vs. Wants & Money Management
The best financial lesson you can begin to teach your middle schooler is the difference between needs and wants. As kids begin to save money from odd jobs and chores (mowing the neighbors’ lawns, for instance), take the opportunity to enforce good saving and spending habits. If they’re not earning money, it may also be a good time to give them opportunities to do so with some extra, more involved house chores or responsibilities.
Help your child create a personal budget using the 50-25-25 rule. Fifty percent goes to everyday expenses like snacks, 25% goes to savings, and the remaining 25% can be used to save up for a major ‘want’ – this could be a smartphone app or the latest gadget.
Helping your 12-14 year-old create a financial plan for both the needs and wants in their world will give them great context for these financial lessons, and create healthy financial habits for the future.
FUN FACT: The US could save 4.4 billion dollars over 30 years if we replaced the one dollar bill with a one dollar coin.
Ages 15-18: First Jobs and College Prep
By high school, many kids head into the workforce for the very first time. With this new windfall of cash, it’s imperative that they have a safe place to keep it, and the skills to save it.
At this age your child is ready for a youth checking account to help manage their cash flow. PFCU’s CU Succeed program has no minimum balance, no monthly service fees, and a check card.
With this new financial responsibility comes a lot of new terms that may be confusing. Your child can check out http://www.claimyouryouth.com/Financial-Glossary to learn about complicated terms like APR, Compound interest and Dividends.
By now you’ve hopefully worked with your child to create a budget. Introduce them to more tools for creating and tracking a budget.
Here are some easy to use tools for budgeting and financial literacy for high schoolers:
- Mint.com: Mint is a great app for teens (and adults) because it is simple and easy to use. It helps track spending and gives valuable insights into where money is going month after month. After a few months of tracking, you and your teen can analyze his or her spending to see where there may be some potential savings.
- ItAllAddsUp.org: This is an interactive website including games teaching lessons in credit management, budgeting, saving, and spending.
- Understanding Taxes: Where better to learn all about taxes then the IRS! This is a great site with activities, tutorials and simulations that teach kids all about how taxes work.
High Schoolers are likely to be thinking about college. The cost of higher education can have a huge impact on your child’s financial well-being for many years after a degree is earned. Help your teenager make better choices when looking into colleges and student aid options with these helpful resources:
College and Young Adulthood: Building Credit
Once your child heads into young adulthood, it’s time to put their knowledge to work in the real world. Now is a good time to start building credit. If they haven’t already, young adults should apply for a credit card. Look for a card with no annual fees or get a secured credit card which works much like a debit card, but will report responsible use to the credit bureaus. This is a low risk way to begin building credit, and good credit is very helpful when applying for loans for big ticket items like a car or a mortgage.
Using these tips and helpful tools, set your child up for a lifetime of financial know-how.
Have questions about the right youth financial products for your child? Give us call today at 215-934-3500.