October is National Financial Planning Month, and the impact of COVID-19 on the economy and many people’s finances illustrates the importance of being prepared for the unknown and ready for financial emergencies. But personal finance is still a topic not taught in many schools. And even if classes are offered most schools don’t require them and don’t test students to ensure they have learned the material before high school graduation. The need for better financial education for kids is illustrated by the growing trend of millions of Millennials and Generation Z turning to TikTok to learn from financial influencers about how to budget, invest, save, and plan for retirement.
While there are some credible sources creating these videos and they are providing helpful advice, there is one question parents need to be asking about this troubling trend. Do you really want your kids to just be learning about budgets, savings accounts, 401Ks and other vital financial topics in their 20s?
There is a reason kids are taught topics like math, language arts and science throughout their grade school years. It takes time and repetition to learn these concepts. The same is true for personal finance, yet something so vital to success in life as an adult is an educational afterthought for many kids. This year, with many schools having to operate via remote learning the burden to teach personal finance will fall even more heavily on parents.
This can be frightening, especially for parents who do not feel like they are particularly well-versed in financial topics themselves. But there is no reason to panic. As parents are learning, nearly any question kids have about something they are learning in school can be answered with a web search. The same is true for personal finance. And like any subject, the earlier kids start learning the basics, the easier the process will be in the long run.
So, where to start? This will depend on a child’s age and how much he or she already knows about personal finance. But, use these tips as a guide:
Work = Money = I Want
This is a great place to start with younger kids. They won’t be able to track their income and spending in a spreadsheet yet or grasp the concept of compound interest. But they can start to understand that things they want/need don’t just appear they have to be earned. Set a goal for kids to earn something they want, it can be a video game, a toy, a bike, etc. Assign them tasks that will earn them money toward that goal and track their savings as it grows until they earn it. When they earn their goals, celebrate the achievement and discuss with them how this process is something adults do all the time.
Some things are still paid for with cash, but not all that often. And with the current coin shortage it’s become even more complicated to use cash instead of a card. It’s estimated that less than 10% of the currency in the world is actually paper or coins. This means children need to know how to manage “invisible money”, including paying bills and ensuring bank accounts don’t hit zero. Instead of giving kids paper bills to spend, start them off with gift cards or if they are a little older a debit card. This will help them learn how to responsibly spend money they cannot see in their wallet or count physically.
Setting aside money for savings is a simple concept to understand, but one that is hard for most Americans to actually do. According to a 2019 Bankrate.com survey, More than one in five (21 percent) of working Americans are putting nothing into savings. 20 percent save only 5 percent or less of what they make, and 28 percent save 6 to 10 percent.
Make savings a lifelong habit for children by always having them set aside a portion of any money they get (birthday, holiday, babysitting, mowing grass, etc.) and place it in a savings account. As a rule, 50% should go to savings.
As soon as kids start earning money, they need to start practicing how to manage it. If kids are just given money to spend however and on whatever they please, they won’t establish good money habits that will transfer into adulthood. There are dozens of ways to format a monthly budget and a quick online search can help find the right way for kids to keep track of their earnings, spending and saving, based on their age and abilities. Having a budget that they can look at each month is especially helpful for kids and teens who are learning to manage digital money because it is tangible.
Parents have a lot on their plates right now. But children’s financial educations are not something that can wait until tomorrow. By the time tomorrow finally gets here the kids will be grown, and they’ll be on TikTok or YouTube trying to figure out how to make a budget and invest for retirement.