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- Access to financial literacy education varies across K-12 schools in the US.
- Parents can encourage financial literacy skills for their children at home.
- Children can also build financial literacy using educational resources like apps.
Financial stability can directly impact a person's quality of life. Yet ensuring young people develop the financial skills to achieve economic success as adults is not prioritized in all K-12 educational settings.
According to the California Department of Education, only 26 states in the United States require high school students to take a course in personal finance. California just recently made this requirement official; in the press release announcing the agreement, Gov. Gavin Newsom said, "Saving for the future, making investments, and spending wisely are lifelong skills that young adults need to learn before they start their careers, not after."
However, research demonstrates that learning about finances outside a traditional school setting can also be impactful.
A 2020 study published in the Journal of Financial Counseling and Planning found that "college students that were explicitly taught financial basics by their parents, felt a beneficial influence of this teaching when they made financial decisions."
Although financial literacy education is not a national requirement, parents can still foster financial literacy skills within their children right at home.
Ensure your child understands the importance of budgeting from an early age
Although it's not uncommon for people of all ages to fall into the trap of behaving as if money is limitless, making sure your child understands that it's a finite resource could be a good place to start from an early age.
Jennifer Seitz, the director of education at the family finance technology company Greenlight, told Business Insider that as soon as kids are aware of money and want to start using it to buy things, they're ready to learn about it in an age-appropriate way. For some, this is as early as preschool.
Whenever your child seems ready for more advanced concepts related to money, you can start talking about budgeting.
"Parents can introduce the concept of a budget, and that a budget is a plan for your money, and it's where you can decide how much money will be spent on certain things," Seitz said.
"A very common early lesson is about opportunity cost, which means learning about trade-off decisions — that basically, if you use your money for something else, it's spent, gone, and not available for something that you may want to use it for later that day or another day," Seitz continued.
Seitz told BI an example of introducing opportunity cost could take the form of reminding a child who wants a treat from the grocery store that they could use their money for a treat that day or use it for ice cream a couple of days later, but not for both.
Seitz also said that although increasing your child's knowledge around financial literacy at an early age can be really beneficial, parents of older teens need to know that it's not too late for them, too. Even if you didn't start early, that doesn't mean you can't start now.
If your child is a teen, Seitz recommends encouraging them to start thinking about their future financial aspirations and explaining how good financial planning can help them achieve those goals. Seitz said teens, in particular, may want to save up money for a concert, attend class trips, or a school dance, and even start planning around paying for higher education. Whatever their future holds, talking to them about how money plays a role in those plans is a crucial step.
Pay attention to the financial habits your children are observing from you
Although it may be easy to forget sometimes, your child is learning from your behaviors and the habits of the other people around them regarding a multitude of things, including how to handle finances.
Seitz told BI that numerous studies examining how children develop money knowledge have identified that one way children learn is through modeling, where they observe their families' financial habits and attitudes towards money.
Seitz also said parents should be open to having conversations with their children about money and prepare for those conversations if they're not used to doing so, as conversations about money also foster children's money knowledge.
Encourage your child to play a direct role in their financial literacy learning journey
While having conversations and modeling behaviors are good ways to teach your child, sometimes the best way to increase their learning is to allow them to turn their knowledge into action and be an active participant in their own journey with money.
Michael Broughton, founder and CEO of Altro, an app that helps users build credit, told BI that getting started on the stock market could be a beneficial tool.
"I think the biggest thing that most parents may not know is that you can open up a brokerage in the name of your kids, so they can actually have a stock account that's in their name that they're able to trade on," Broughton said.
"What I'm doing with my younger sister is just setting up an automatic pull from an account. So every two weeks, she's getting maybe $25 or $50 to go invest in the stock market and see it grow," he continued.
Broughton told BI that parents should show their children that they are able to invest in things that they are actually passionate about.
"So my little sister, she invested in Mattel because she thought that Barbie was going to do really well — she invested in some bowling stuff, some games stuff, and that's really helped build the beginning of her portfolio."
Broughton also told BI that although stocks can be hard to explain, referring to certain events impacting the stock market as simply good or bad could be helpful.
"Disney just made 'Inside Out 2,' that's doing really well, everyone's talking about it, and I would ask my sister do you think Disney's doing good or is Disney doing bad? — She'd say they're doing good, and I would say, well, that means that the stock is doing good, and we would go look at the stock, and if it's up, I'll be like, she's right, or it's down, like, let's go look at the news and figure out why," Broughton said.
Seitz said one method parents can use to help young children not only learn how money is earned but also be reminded of its limits is to provide them with an allowance for completing chores.
"Every family is different, and every family has different ways to manage that. Some families prefer not to tie chores and allowance. And there are still great money lessons that can be learned in that way. The Greenlight app is set up so that parents can make that distinction, whichever way they can, either, have money earned for chores or only for special odd jobs above and beyond what their kind of daily expectations might be," Seitz said.
Although there has been legislative progress in ensuring financial literacy is incorporated into a child's K-12 educational experience in the US, it's an ongoing process. Until that happens, parents can foster financial literacy skills in their children and connect them with other resources at home.
Discussing money can be tricky at any age, but the earlier children start learning about money, the easier it becomes to talk about.