Studies show that children—even college-age children—don't have basic skills and knowledge when it comes to personal finance. That begs some important questions: Why aren't parent teaching their kids good money management skills? And how can we successfully teach our kids about finance?
For a primer on getting a good money discussion started in your family, the U.S. Consumer Financial Protection Bureau has put together a lot of simple, research-based materials (activities, conversation starters, etc.) describing easy ways that parents can incorporate financial learning into their kids' daily lives. The recommendations are broken down by age group as follows:
- "When children are ages 3 to 5, help them learn to stay focused, make plans, follow directions, complete tasks, and solve problems."
- "When children are ages 6 to 12, help them with rules of thumb and day-to-day habits that shape how they earn, save, and shop."
- "When children are ages 13 to 21, you can give them chances to make money choices, experience natural consequences, and reflect on their decisions."
Click here for the entire CFPB report for more details and resources.
The issue of financial illiteracy
Even if given the tools, many U.S. parents are hesitant, at best, and resistant, at worst, about talking to their children about money: "69% of parents have some reluctance to discuss money matters," according to T. Rowe Price's 2017 Parents, Kids & Money Survey, which surveyed 1,014 parents of 8-to-14-year-olds. "Additionally, 61% of parents only discuss money with their kids when their kids ask about it."
Part of the problem is that way too many U.S. adults don't have a firm grip on money management issues. Another recent study from FINRA shows that 67% of adult Americans can't pass a basic financial literacy test. Not surprisingly, when Experian asked parents about this, 60% expressed concern about their children's ability to manage their finances in the future.
That's doubly unfortunate, as additional data shows that good money habits among parents can easily be "handed down" to their sons and daughters.
Teaching kids about money early on
"We know that kids' money habits are formed before they get to high school and that their parents are often their most influential teachers," says Roger Young, a senior financial planner at T. Rowe Price and a father of three. "It's unsurprising, but still saddening, that parents with troubling money habits seem to be passing them onto their kids. These parents are hit with the double consequences of their own financial mistakes and the prospect that their kids may be set up to relive them.'
Other financial experts agree, adding that regular study of key financial matters like credit, debt and tax management can provide a huge knowledge boost—and asset boost—for children later in life.
"Focusing more time and attention on teaching high school and college students to be financially literate is a building block to success and financial independence," says Richard Muskus, Jr., president of Patriot Bank in Stamford, Ct. "Lacking these skills can become a lifelong burden."
Judith Corprew, an executive vice president at Patriot Bank, who runs the bank's financial literacy educational programs, adds: "Children who don't learn financial literacy become adults who lack the financial know-how. In many cases, parents simply don't have the tools to teach their kids these essential skills."
Teaching financial literacy in schools
In addition to parents, schools need to get on the financial literacy bandwagon, too.
"Parents also assume that their kids are getting this kind of education in school, but studies have found many are not, or getting very little," Corprew states. "Only 17 states require high school students to complete a course in personal finance."
Corprew believes all schools should treat this issue as they do other subject matters and make financial literacy a requirement.
"Individual choices about savings and debt impact the entire economy and we are raising a generation where far too many lack basic knowledge," she says. "The key is educating parents to have conversations with their children about planning, and its importance to their financial futures, including student debt, managing credit cards and car loans and using checking and savings accounts."
Making time for the important conversations
Time is another obstacle to a candid talk between parents and children about money. In short, families don't have much of it, although that problem is surmountable.
"Most families are extremely busy, so it can be challenging to find time for these conversations," says Elizabeth Odders-White, associate professor of finance at the University of Wisconsin School of Business. "The good news is that it's actually relatively easy to weave opportunities for learning into your regular family activities."
To get the ball—and the conversation—rolling, parents should begin to show, and tell, their children good money habits.
"Even if parents lack confidence in their own ability to manage money, they are making financial decisions every day, such as analyzing tradeoffs, assessing wants and needs, and setting goals," notes Odders-White. "By making these decisions visible to their children, and by supporting their kids as they practice making their own financial decisions (when they are ready), parents expose their children to a wealth of valuable experiences."
These conversations are rarer than they should be, but that's a trend that can easily change in any U.S. household, rich or poor.