Given the ever-changing economic climate, financial literacy has never been more important. However, according to an article in Time from 2013, only 20% of teachers feel qualified to teach financial literacy. And because education is managed at the state level, there is no federal mandate or standard for personal finance courses in schools. That means it’s up to parents to help their kids understand the value of a dollar. Here are some ways to help you get started.
Teach Your Kids Where Money Comes From
On the Optimal Finance Daily podcast, financial expert, Kalen Bruce, details 5 places money comes from and encourages parents to explicitly teach these principles to their children. According to Bruce, money comes from:
When parents emphasize that money doesn’t actually come from mom and dad’s wallets, kids can start to come up with ideas for how they will get their own money for the things they want now and later in life. This is an opportunity for parents to guide their children as they dream big for the future.
Ditch The Allowance
Allowances are controversial, but if you really want to teach your child the value of a dollar, they need to work for their money. “Don’t just give them handouts,” says Bruce. “Give them money when there is a reason for it.”
Appropriate reasons for giving money to children are different in every family. One family, for example, may pay their children when they complete chores. Another family may choose not to pay their kids for chores because they consider chores a necessary, unpaid part of life. Instead, they help their kids come up with alternate ways to earn money, such as taking on odd jobs for neighbors or getting a part-time job. Either strategy will work as long as the money is earned.
Stop Paying For Their Mistakes
We’ve all made mistakes. But the mistakes that cost us financially sting a lot worse. It’s natural to want to protect your kid from that. But when you pay for their mistakes, you absorb the consequences of their choices, making it more likely that they’ll repeat the mistakes.
“What saves us is…allowing the kids to make mistakes, but also not judging them when they do,” says Bobbi Rebell, a Certified Financial Planner and author of Launching Financial Grown-Ups, in a podcast interview.
Instead of erasing their mistakes or shaming them, parents can support their kids as they try to right the wrong. This could include helping your child come up with a plan or simply serving as a sounding board for their ideas. Whatever you do, resist the urge to pull out your checkbook and make it all go away.
What if you’re bad with money? Or don’t feel like you’re in any position to be teaching about personal finances?
“Do it together. Just own it,” says Rebell. “Tell your kid: This is how my background was. I want more for you, but I also want more for me. So let’s figure it out together, and let’s make a plan.”
Becoming more financially literate with your child can be an incredibly bonding experience. Your kids can learn from your mistakes. And the reciprocated vulnerability can bring you closer together. Don’t use your inexperience or bad history as an excuse to not teach your kids the value of a dollar.
Whether you’re learning or teaching about personal finances, it’s easy to get tunnel vision and forget that your personal finances have an impact on more than just you. One way you can teach this to your kids is by encouraging them to be generous.
Bruce encourages parents to “take [their] kids to church or a charitable organization and let them give their money. Then, show them what the church or charity does with the money and link it together with the money they gave.”
If giving money isn’t reasonable for you or your child right now, remember that generosity isn’t always measured in dollars and cents. Time is currency too. Teach this to your kids. As an alternative to money, encourage your kids to give their time to someone or an organization. And point out how their time is benefitting others.
The Bottom Line
Parents are their children’s first teachers. And even if your child is taught personal finance in school, nothing can compare to real-life experiences and examples. Regardless of their financial background and history, parents can invest in their children’s future by teaching them about personal finances, so their children can grow to be financially literate adults.