Teaching Kids About Money: Their Financial Literacy Begins With Us

There is a quote by Confucius that I came to know well in my years as a middle school teacher: "I hear, I forget. I see, I remember. I do, I understand." In the context of the time, there was a strong movement in mathematics education to incorporate hands on activities in order to allow students to make sense of what they learned. As a parent and home educator, I find more and more that this same attitude is not only sensible, but essential, when it comes to teaching kids about money. What they hear, they will probably forget. What they see, they will more likely remember. What they do, they will understand. Financial literacy, gained through hands on, interactive learning in the family, is that which will most remain with a child as he grows toward adulthood, and toward adult responsibilities. Teaching kids about money must involve practical application, and parental direction.

As a child who grew up in Las Vegas, I was in an interesting venue for financial lessons. Some, I'm sure my parents may not have realized I studied. Others, I wish I had. Slot machines were not restricted to the resorts, but graced an entrance area of nearly every grocery and convenience store that existed. It wasn't unthinkable for my Mom to stop and play a few quarters on the way out, after purchasing the groceries.

When I reached that longed for milestone of age 21, I naturally made this a part of my routine. Walking from the dorms, to 7-11 for a study break during my last 2 years of college, I had to play my few quarters. One of the worst things to happen was the hitting of a royal flush, without the full number of coins in the machine. Thinking of the mere $62.50 won, rather than the potential $1,250, I was sick. And every last quarter went quickly back into that hungry monster, as I tried for the unattainable repeat.

I never got to the point of being highly addicted to gaming, but I could waste good money easily.  It carried on into my life as a teacher.  Stop for that coffee on the way to school, play a couple of bucks in the video poker machine.  I eventually became disgusted with the amount of waste those couple of dollars here and there represented.  These days, I rarely notice the machines.  However, the lives of many who live in casino and gaming related communities are not so easily disentangled.  What we model may, or may not, impact the youngsters we raise.  However, what they see, they will remember.  When they do, will they understand?  And what will they understand?  Our financial behavior makes an impact.  It conveys our approval, or disapproval, and we need to be prepared to recognize this in our next generations.

There are many good educational materials for teaching kids about money.  Financial literacy has become more serious to our youngsters as they strain to comprehend terms like "foreclosure", "deficit", and "bankruptcy".  Some are learning firsthand, due to family circumstances.  Some of these circumstances are due to poor choices within the family, and some are simply due to the fact that economic conditions have deteriorated.  It's wise for parents in any circumstance, stable, or unstable, secure, or fragile, to take the time to discuss the state of finances in our nation.  Beyond discussion, it's good to find some resources which will explain and teach financial principles.  Finally, as much as possible, it's important for us, as parents, to provide hands on experience with money.  If circumstances are such that you can't do so now, make every effort, when your budget allows, to begin.

A student savings account is a great device for teaching your children about finance. It allows you to discuss the idea of interest, and the requirements an institution has for opening such an account. Some require a minimum deposit of $1.00, others, a much higher deposit. Discuss what money might go into this account: birthday checks from relatives, chore money, babysitting money, money earned by collecting aluminum cans? There are many options. We don't give an allowance in our home, but we do allow for extra money to be earned through extra jobs.

My children have learned from each other's actions with regards to savings accounts. Some of the kids keep very little in their accounts. Others save over long periods of time. One son saved birthday money for three years in order to buy a video game system. Because it was purchased on sale, we urged him to pay for the extended warranty. Two weeks before that warranty expired, the game system quit working. It was replaced with a brand new system. You can imagine the principles that all of the children, and Mom and Dad, learned in the process. I do, I understand!

Aside from using instructional materials, there are a few devices which can be put to use in instructing your children. Special piggy banks are designed to assist students in delegating their funds for different purposes. Some such banks include savings, spending, and giving. Others break things down a bit differently. Nevertheless, you can begin to help your child to develop financial literacy by providing a savings bank of this sort.

Gift cards are a useful type of gift for teaching children about shopping, and allow them to deal with limits. Likewise, money gift cards with major credit card logos, such as Visa or Mastercard, allow for children to have some freedom in spending, with restrictions through limits. These can be useful teaching tools, in that once the limit is met, it's met. there is no going beyond. Students learn to pay attention to what things will cost, how much sales tax will be, and whether or not it's worth while to purchase. This opens up doors to online shopping, which can have advantages for bargain hunting youngsters. However, this is countered by the possible shipping costs faced in such a shopping venue. We don't want our youngsters to become adults who must contend with this element of commerce, integral in many of our own lives, without permitting them the opportunity to work through the pros and cons of online commerce while we still have the opportunity to instruct well.

Of course, having their own cards is not an essential to handling online retail. My youngsters, when they desire to make a purchase through an online venue, usually do a great deal of research and cost comparison, take time to look for discount coupons and codes, and negotiate the terms of the purchase with me. Either they have the money, and reimburse me, or, occasionally, ask for some extra jobs in order to earn the money. These are all helpful means of teaching them to handle their own funds.

Checking accounts, in the past, were very important elements of finance. However, the delicate nature of the economy has caused some challenges in the fees and services associated with them, and even adults are having to examine and re-think this aspect of finance. Balanced checkbooks were taught, and correct filling in of a check, from middle school and up in math classrooms. However, the concepts of debit cards, transaction fees, and account holds have come to the forefront, and adults must learn, even as they are teaching their children about money. One thing recession has taught of late, that financial environments can change rapidly, and that we all must be willing to learn anew.

Helping your older children to establish and properly handle a checking account is a sensible means of developing their financial literacy, and refining your own. It may seem overwhelming as you navigate the different fees and requirements to open and maintain such an account, and it may shatter some of your pre-conceived notions. I've been a member of a credit union which required a savings account in order to open a checking account. It was a complete surprise when I examined literature from a different bank, and realized that it required maintaining a checking account, before one could open a savings account. Be a learner, and teach your child to be a learner, when it comes to finance, to study the relevant information, to research, and to ask questions.

Kids know that times are hard for many.  They hear news, and see foreclosure signs, and observe as classmates leave, while others come.  Watch, or read, financial news together, and allow your child to ask questions.  Take time to ask some age appropriate questions, after a broadcast.  How did that story make you feel?  What is a budget?  Why were those people homeless?  Make it tangible, and help your child to select some food items to take to the local food pantry.  Pick a tag from the tree at the mall, and have your youngster help to pick out Christmas gifts for someone in need.  I hear, I forget.  I see, I remember.  I do, I understand.  Your children can learn to handle money, and they can learn to have compassion on those who have fallen into undesirable circumstances.  They can learn that financial troubles can result from poor choices, or from situations that couldn't be helped.  They can learn to make wise choices, but they can learn compassion in the process. 

Thanks to the following photographers at Flickr, for use of their pictures through Creative Commons licensing:

DanTheWebmaster, Las Vegas Strip

Jeff Kubina, Slot Machine

TheTruthAbout, Credit Card Logos

DocentJoyce, Salvation Army