Americans struggle with financial literacy. According to a survey conducted by the FINRA Investor Education Foundation, only 34 percent of more than 27,000 respondents could answer at least four of five basic financial literacy questions on topics such as mortgages, interest rates, inflation, and risk, compared to 42 percent in 2009. The foundation said the drop in scores appeared most pronounced among people ages 18 to 34.
This trend doesn’t have to continue for the youngest members of society. Parents would be wise to educate their children on finance immediately.
“It’s never too early to teach kids the value of money,” said Chanelle Bessette, banking specialist at NerdWallet. “The trick is to teach kids about money with age-appropriate tactics. For example, teaching your elementary-aged kids how to budget their weekly allowance can be a good opportunity to encourage them to put part of their earnings into categories like ‘savings,’ ‘spending,’ and ‘charity.’ As teens become old enough for a part-time job, you can help them open their own checking and savings account so they can put their money away for everyday expenses as well as long-term goals, like saving for college or a car.”
Inverse reached out to finance websites NerdWallet and SmartAsset for their top tips on conveying financial literacy to kids. Here’s what they shared.
5. Teach that time is money
“Teach your kids about the value of money in terms of time,” Bessette said. “If they earn $10 an hour by raking leaves for neighbors and want to buy a $50 outfit, then show them how that outfit is then worth five hours of their time. It may lead them to rethink certain purchases and save their money for something that’s a better trade-off.”
4. Follow their interest
“Pay attention to your child’s level of interest in money,” said Chris Thompson, editor at SmartAsset. “This will likely include them wanting to save up for a bike, video game, or something else, so take this opportunity to show them about saving money.”
3. Help them imagine
“Show your kids how compound interest works, especially for long-term goals like retirement savings,” Bessette said. “Give them examples of what their retirement savings could look like if they start at various ages, and how much more they can earn if they start early. You can even use an online compound interest calculator to demonstrate.”
2. Open that account
“As your child gets more comfortable with saving, consider opening them a joint checking account so they can experience what it’s like to manage money on a consistent basis,” Thompson said. “Many banks that have kids savings accounts also offer checking accounts for children as young as 9 or 10.”
1. Be the teacher
“Provide resources for your kids to read and watch, such as books, articles, and videos about money,” Bessette said. “Kids usually aren’t taught how to manage their money in school, so it’s important to teach them about different financial products and concepts and how they work. Even if it seems like obvious or basic information to you, they’re learning it for the first time, and that knowledge will be foundational to their financial well-being.”
Here are NerdWallet’s top rated savings accounts for kids:
- Alliant Credit Union Kids Savings Account (0.55% APY)
- Capital One Kids Savings Account (0.30% APY)
- Golden 1 Credit Union Youth Savings Account (0.08% APY)
- BECU Early Savers Account (2.02% APY)
Financial resources for kids, as recommended by SmartAsset:
- “For bank accounts, PNC Bank has a number of great tools and features for kids learning about money and how to manage it,” Thompson said. “The account even gets Sesame Street characters involved through its learning center.”
- “RoosterMoney is a great app for parents looking to help their child manage the money they receive as gifts or allowances,” Thompson said. “It makes it easy to set savings goals, and your child can work toward them.”
Teaching your kids about money at an early age will be invaluable as they navigate life, so start as soon as possible.