These days, young adults are struggling with debt and financial stability. In financial literacy surveys, millennials score lower than any other age group. In essence, emerging adults are struggling with paying their bills on time, sticking to a budget, and saving for retirement. They are confused, clueless, and anxious about their finances—and may not have a plan for their future.
Which leads us to the all-important question: how can we help our children develop financial literacy? The answer: start by teaching them sound financial principles while they are young. The younger you begin teaching your children about money, the more likely it is that they will become financially independent. Begin with simple principles, and then build on from there. Here are some tips to keep in mind.
Open an Account with Your Child
It’s a good idea for your child to open an account with a credit union. The advantage of a credit union over a bank is that a credit union will offer better interest rates and won’t have as large of a minimum balance fee—if any at all. Going over the monthly statements, demonstrating how to balance a checkbook, and showing the children how their money is working when it’s not in their pockets will make them think about using the resources available to them later on in life.
Use Games as Teaching Opportunities
Teach them how money works by playing games and showing demonstrations. Games and visualizations are a great way of teaching children how to become financially free. Research games that teach kids about money and how it moves. If you are able, give your child a weekly allowance and use it to play budgeting games that emphasize how to save, spend, donate, and invest money.
A great example of one of these games is Cashflow. Cashflow was designed to illustrate difficulties with balancing bills and improving income for more cash flow. Even games like Monopoly will teach children about mortgages and interest. If a child becomes used to the idea of how money moves, then they won’t be intimidated by it later on in life.
Another great teaching method is practical application. For example, say your child wants to buy a toy. You could use this opportunity to teach your child about borrowing money through loans. You could loan money to your child for the toy, which your child then must pay back by working doing chores like mowing lawns or by starting a business (like selling lemonade). When the loan is repaid, take this as an opportunity to teach them more about debt and loans.
Misunderstandings surrounding debt and credit cards can be a major pitfall for young adults. While you don’t have to go into every detail surrounding credit reports and interest rates, it’s important for children to understand that credit cards aren’t free money. Be sure that your child understands that credit cards and payday loans are great for emergencies and time-sensitive expenses, but they aren’t the same as using regular money.
When a child reaches young adulthood, their minds will hopefully have been opened enough to how money works to understand how to work the system alongside the rest of the financially free world. Perhaps your young adult will rent with a roommate to save a bit of money or even invest in a property that’s a fixer-upper and profit when moving out. There’s a reason why wealthier people have more real estate: more real estate means more assets.
Overall, it’s a great idea to teach children about money! The sooner you begin to open their minds about how money moves, the more prepared and better equipped they will be. Like a seed that is nurtured into a giant tree, your child will be nurtured into a financially free adult.