Financial literacy is a hot button topic these days. Personal finance experts say consumers often get in trouble financially because they lack basic money-management skills.
Personal finance expert Christopher Krell says financial education should start early, and it should start at home. Krell cites a recent study by WalletHub showing an alarming rise in credit card debt. Consumers added more than $60 billion in new debt in the fourth quarter of last year.
“In an environment such as this, it is difficult to set an example for your kids,” said Krell. “When they see mom and dad constantly reaching for the credit card, they begin to think that living in debt is okay. It is imperative that you teach kids now to save even if it’s a life lesson in don’t-do-what-we-do.”
But research shows parents aren't promoting financial literacy at home. The recent Junior Achievement-Jackson Children’s Financial Literacy Survey showed that 33% of children haven’t been taught how to get or earn money.
The poll of 500 elementary school-aged children and their parents also revealed that 41% of children had not been taught how to spend money. At the same time, nearly half had not learned how to give money to help people.
How to start
To help children improve their financial literacy, Krell suggests starting with teaching them the value of money. Give them an allowance in exchange for household chores, but have them separate the money into three categories -- save, spend, and give.
Once they have enough money in the "save" pile, have children open a savings account at a bank. True, they will earn a minuscule amount of interest, but the lesson is about compounding interest. The money in the account will grow, albeit slowly.
Krell says parents should also take advantage of trips to the grocery store to teach children the value of comparison shopping. Teach them about generic items and why they cost less than brand name products. Krell suggests letting children select some of the items on a grocery list by comparison shopping.
Okay, so maybe you haven't done such a great job with your finances and don't feel you're in any position to teach your kids good financial habits. Wrong, says Krell. He urges parents to be honest about the family finances. If you have credit card debt, explain to your kids why that makes things harder.
At the same time you're teaching kids the value of money and how to handle it, Krell also advises teaching the value of giving. Have your children donate some of their money to a local charity or cause, like a food bank, so they can see how their contributions are helping people.
“Remember, it’s never too soon to start teaching your children the value of money,” said Krell. “The worst thing we can do is never speak with our kids about money, saving, spending and giving and then expect them to go out into the world to try to figure it out on their own. It’s a recipe for disaster.”