November is Financial Literacy Month! While we at Schooley Mitchell have spent the month reflecting on good financial habits for business owners, we would be remiss not to note that an important part of financial literacy is passing on our knowledge to the entrepreneurs and professionals of the future.

In this issue of the Pulse, we share some advice for teaching school-age children and teens a few principles of financial literacy, so that they can build good habits going forward into the rest of their lives.

Children lack necessary financial fundamentals.

If you’re a parent, your child might come home from school with information about the quadratic formula, the biology of a cell, and a ton of Shakespeare, but there is less of a chance they’ve received dedicated education relating to financial literacy. This education is not only lacking at school, but at home, too.

The truth is, nearly half of parents report they miss opportunities to talk to their children about finances. A quarter feel a small to extreme degree of reluctance to have these discussions. At the same time, half of children are eager to learn.

It is better for children to learn financial literacy from their parents, rather than later in life, potentially after having made a costly mistake.

Start with the basics.

Sam X Renick has been teaching children about money since 2001, and uses his storybook character Sammy Rabbit to do so. Renick says the earlier you can start teaching children about financial literacy, the better. Renick recommends starting before the age of seven, because by seven, research has found money habits and attitudes have begun to form.

For young children, money lessons should consist of very basic things:

• Introducing them to the different values of coins and cash.
• Explaining how money works.
• Showing them how purchases are made with cash or card.
• Showing them receipts when appropriate.

If you’re wondering at what age to introduce a child to a specific financial principle, TD Bank offers a wonderful online guide that can help direct you.

Make saving a habit.

Because a lot of money related lessons will include spending, it is equally as important to show children the foundations of saving.

“Saving teaches discipline and delayed gratification,” Renick told Forbes. “Saving teaches goal-setting and planning. Saving stresses being prepared. Saving builds security and independence.”

Simple teaching tools like a piggy bank or savings jar, reinforced by positive statements about savings, can go a long way in building good future habits.

For younger children, teach the value of savings by working towards a short-term goal, such as a new toy they want. As they age, you can begin introducing longer, harder goals. Parents who employ tactics such as matching their child dollar for dollar, or by a certain percentage, are also often successful in encouraging good savings habits.

Show that savings can grow.

Once you’ve instilled them with a sense of savings, one of the rewards can be to watch the way savings can grow. Savings accounts with compounding interest, such as a certificate of deposit, is one such safe way to do this. Likewise, you can calculate and add interest to your children’s savings yourself.

Some banks offer custodial investment accounts for minors. If you’re comfortable taking that kind of step, that is another excellent opportunity for you and your child to take a small amount of money and watch it grow.

Allow children to earn their money.

Children need to have money of their own to learn to use it correctly, but they must also have the opportunity to earn that money.

“Just about everyone values money they earn differently than money they receive,” Renick said.

Basing allowance amounts on household chores, for example, is one way to teach this.

Gamify the experience.

All children have different learning styles. Some will do well talking and working through different concepts with you, and others may thrive if you gamify their learning. There are many board games and apps out there that can help kids learn some of the basic tenets of finance. You can even design your own!

The takeaway here is, while finances are a serious subject, making financial education fun can help children better process this information and apply it properly in the future.

Don’t forget to teach them about debt.

Many young adults find themselves in credit card debt once they’re out on their own, unaware of how they got there or how to manage it. This is an unfortunate situation, and one most are unprepared to face.

If you’re already building good savings habits, that’s half the battle. However, debt repayment and interest accumulation is another important lesson.

One solution can be to emulate a debt situation with your child. Let’s say you loan them $15 for a purchase, but require they pay one dollar a week in interest until the loan is repaid. Each time your child misses a payment, they owe an additional fifty cent penalty.

Showing children that there are consequences to loans, and that maintaining a good payment schedule is best practice can be done from a young age and could save them a lot of hurt later.

In conclusion…

Children do not get the education they need about finances. Consequently, many go on to become young adults who make uninformed decisions. This Financial Literacy Month, and always, invest in your children’s financial future by having these conversations and instilling good habits from a young age