We’ve known for some time that many Americans struggle with understanding finances. Unfortunately, it’s a problem that appears to be worsening in our country. I was startled to learn that only 34% of Americans can answer at least four of five basic financial literacy questions on topics such as mortgages, interest rates, inflation and risk according to FINRA.
Despite some noble efforts at the federal, state and local levels, a portion of the population remains financially illiterate – meaning they lack the ability to understand and effectively use various financial skills, including personal financial management, budgeting and investing. Without these skills, Americans struggle with everyday tasks, like paying bills on time, as well as larger goals, like planning for retirement or buying a home.
We’re going to have to come together as a country to address this challenge. However, as individuals and parents, an easy place to start is with our own children. Here are three thoughts on how you can help the next generation bridge the financial literacy gap:
Step 1: Talk to Your Kids About Money
Education starts at home, and it’s never too early to have conversations about money with your children.
Only 28% of parents are currently talking to their kids about money, according to a study by the Boeing Employees Credit Union. This is often based on fear, embarrassment or the belief that money is a taboo conversation topic, which we must overcome as a society.
Your children will benefit from learning about the financial decisions that benefitted you as well as missteps you may have made along the way. Helping them understand your spending habits, how you manage the family budget and think about debt will make them feel more comfortable asking questions. It also helps them begin to build a road map for when the time comes to manage their own finances.
Step 2: Create an At-Home Project
A great way to enhance financial literacy is through hands-on experience. Setting up a learning project at home is a great way to get your children thinking about financial responsibility.
One way to do this is by challenging them to set a monthly budget for their spending money and helping them open a savings account where they can put a small portion of their money away. This can provide a fundamental view on smart money practices. The more your children learn to save, the better they will understand how rewarding it can be to watch their money grow. And putting their savings to use for a big-ticket item they never thought they could afford on their own can serve as a tangible reward for them to …….
