Did you know financial literacy is on the decline? About four in every five young adults would fail a financial literacy quiz–that’s 80 percent! Because it can take years to teach young ones how to make positive financial decisions, it’s important to start teaching your child about finances while they’re young. Talking about financial literacy is easy, but what exactly is it?
What is financial literacy?
Investopedia defines financial literacy as, “…the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing.” So, financial literacy isn’t one simple idea. It’s actually a collection of skills and knowledge; being financially literate means you have the educational tools to have a successful financial life. With the growing importance of credit and debit cards, online banking, and electronic payments, financial literacy is evolving fast. Apple Pay, Google Wallet, and monthly subscriptions are just a few of the recent developments in our daily financial lives that require more and more financial literacy. As technology develops, so will our financial tools, and so will financial literacy. We’ve got to make sure we keep up!
Why is it important?
Financial studies show about half of Americans don’t expect to have enough money to retire comfortably. Along with less savings, Americans’ debt is increasing. Not only are people struggling financially when it comes to debt, but they’re struggling in general, with more and more people living paycheck to paycheck. In a 2018 Federal Reserve report, almost half of the U.S. population couldn’t afford a $400 emergency expense. So, we can see that there’s lots of opportunities to improve our population’s financial literacy. Parents can take control of teaching their children financial skills that can help them continue to make good financial decisions well into adulthood.
Phil Shuman, Moneysmarts Program director at Indiana University said: “Financial literacy, for me, the most personal debt I have…between my wife and I we paid off $110,000 of debt in five years, because we just learned how to organize our finances in such a way that allowed us to do that. You know, we don’t make a ton of money, but by learning the process and learning what you can do to better organize your life through financial literacy, you can accomplish things a heck of a lot faster and more efficiently.”
Being financially literate means being prepared for the unexpected, making good budgeting and spending decisions, and understanding how credit works. It also means having the tools to create short term goals, long term goals, and investments. Not to mention financially literate people have a higher chance of avoiding scams, being homeowners and having an overall good quality of life. Teaching financial literacy is progressively important, and it’s never too early to start.
How can I teach financial literacy?
Here are some great ways to start teaching financial literacy to your child:
- The value of money: beginning by teaching your child the value of money is a great way to introduce them to finances. Caretakers can begin by explaining things like how much their toothbrush, clothing or food costs and how it’s bought/sold. Contrasting those things with computers, phones or cars, which are worth a lot more, is a good way to solidify a child’s understanding of value.
- Chores aren’t just an annoying household task, but they can be a great way to teach your child how money is earned. Exchanging some money for an odd job around the house is a classic, but it’s super effective in building a child’s understanding. It’s also a great way to begin teaching children how to save and budget. (Letting children decorate jars for saving and spending, and allowing them to divide their money into each jar is a great way to keep them engaged and to visualize what saving and spending look like!)
- Another great lesson for your child is to bring them to the Bank Room at the St. George Children’s Museum to begin teaching them how banking works. What is a teller’s job? What is a deposit or a withdrawal? How do ATMs work? This exhibit room is a fun, immersive and less intimidating environment that a child can learn and ask questions in. (Our upstairs floor is perfect for teaching a child about business and commerce, with our occupations-themed rooms!) Also, throughout the month of August, all our weekly classes will be focused on teaching financial literacy! Check out our calendar for dates and times.
- My529: My529 is a wonderful resource to help caretakers invest in the education and future of their children. Opening a my529 account may help contribute to a positive financial future for your child! Check out their website to learn more about investing with my529 at my529.org.
In a nutshell, August is Financial Literacy Month because it’s just so important! This month, we hope to help bring awareness to not only the importance of teaching financial literacy, but just how easy it can be at home. Teaching your child about finances can be a fun, educational lesson and bonding opportunity. Isn’t that a win-win?!