Teaching financial literacy to children and teens

Nearly two-thirds of Americans can’t pass a basic financial literacy test, according to the Finra Foundation. What’s worse? On those tests, 6 out of every 10 people only got 3 percent of questions correct.

Though more financial courses in public education could certainly help here (only a few states require students to take personal finance in school), parents and teachers may be able to make the most immediate impact.

Teaching children financial literacy – How this guide can help

Do you want to teach your child the ins and outs of money management, help them establish good credit and encourage financial independence as they grow older? With lessons, resources and interactive games, apps and activities, this guide can help.

Each section in this guide is based on the Council of Economic Education’s standards for financial literacy. The standards include earning income, buying goods and services, saving, using credit, financial investing, and protecting and insuring.

Why teach your kids about credit and finances?

Teaching children the fundamentals of credit, finance and money management is crucial for their success and also helps them to develop mathematical and problem-solving skills. By adopting responsible financial practices as a child, the more likely one will have a good credit score when they are older.

Kids and teens need a foundational knowledge of how money is earned, spent, allocated and, of course, borrowed, long before their finances call for it. This will allow them to more easily apply for a credit card, student loan or mortgage down the line, as well as have the credit necessary to do so affordably.

Financial and credit literacy checklist for kids (Grade 6-8)

Early middle school is a great time to start encouraging financial learning. Most children this age already have some experience making small purchases on their own, and they’re usually pretty familiar with seeing adults work, handle money and pay their bills.

Around this time, you’ll want to begin bridging the gap between classroom math and real-world economics. How can they use addition, subtraction, multiplication and division with their money and purchases?

You’ll also want to begin instilling a sense of responsibility in their finances, helping them understand the importance of financial goal-setting (saving up for a new bike, for instance), as well as the short-term and long-term payoffs of saving and budgeting. A good knowledge of how money is made and how to make more of it is also crucial at this stage.

Here are some concepts you’ll want to begin teaching, as well as the resources to help you do it:

Earning Income (Grade 6-8)

Careers: Job options vary, with each one requiring different levels of education, training and skill sets. More training and more education often equate to more career prospects, though they also require a bigger investment of time and money. It is also important to emphasize to children at this age that circumstances and life choices can also impact job prospects.

Entrepreneurship: You can create your own job opportunities and pave your own way. This comes with risks, though, and entrepreneurs should be prepared to take the bad with the good.

Earnings: Income can be earned in many ways. Aside from a traditional income-earning job, investments can also offer income. Interest, dividends and capital gains are a few examples of these.

Social Security: What is Social Security and how does the government program work? You can often relate these lessons by tying in a grandparent or other loved one who gets Social Security payments.

Buying goods and services (Grade 6-8)

The Marketplace: There are many places to shop for and buy goods. Not all sources are created equally, nor are they all trustworthy. Understanding a source’s motives can be a good way to gauge its authenticity and trustworthiness, and ultimately, make the smartest purchasing decision.

Payment Methods: Teach your children than you can pay for purchases in many ways. Cash, check, credit/debit card, electronic payment — a good understanding of all of these, as well as their best use cases, is crucial in today’s economy.

Budgeting: Budgeting is vital to making the best use of your money and achieving your financial goals. A budget should include your income, savings, taxes and expenses — both fixed and ever-changing. Budgets can (and should) be revised as your finances change.

Saving (Grade 6-8)

Banking: You can safeguard your money by putting it into a banking account with a bank, credit union or other financial institution. You may be able to earn money on your savings with an interest-earning account.

Where Interest Comes From: Banks often loan money to borrowers who need it. They get a fee in return for this loan, called interest. They then use these fees to pay savings account holders for entrusting the bank with their money.

How Interest Works: Interest rates are dependent on the larger market. You earn interest on both your principal balance (what you put into the account), as well as on the interest you earn (this is called compound interest). The more money you have in your savings account, the more you can earn in interest.

Using credit (Grade 6-8)

Loans: Loans allow you to use someone else’s money to pay for something — like a home or a car. Loans vary in length and amount depending on where you seek them from. The cost of borrowing this money is called interest.

Credit Cards: Credit cards are a form of a loan. They give you access to funds from the financial institution that has issued the card, up to a certain amount. Credit card rates are generally higher than on other loan products and will cost you more in interest. There are also extra fees if you forget to pay your bill or pay late.

Interest Rates: Interest rates can vary greatly and fluctuate often due to the market. Credit score, credit history and overall risk all play a role in interest rates. The less likely a person is to repay the money, the higher their interest rate will be and the more the loan will cost them.

Financing: You can borrow money to pay for virtually anything, from a car or house to your college education or career training courses. You just have to pay the money back over time.

Financial investing (Grade 6-8)

Financial Assets: Financial assets are anything that has monetary value. They can include bank accounts, bonds or stocks, or tangible items like a home, car or piece of real estate. Retirement accounts and funds are also considered an asset.

Interest: You can earn interest on financial assets such as bank accounts, government bonds and retirement funds. You may also pay interest if you take out a loan.Stocks and

Capital Gains: Stocks are small pieces of a business that you can purchase. When the business makes money, stockholders make money on their investments. This is called a capital gain. When the business loses money, stockholders do as well.

Pricing: Prices of financial assets and real estate are determined by the market. When an asset is in high demand, its price is higher. When demand is low, the price is lower, too.

Financial Risks: There is always a risk when investing in a financial asset or piece of real estate. Riskier investments offer a higher rate of return, meaning the chance to earn more money. They also have a higher rate of loss, which could mean you lose your investment altogether.

Start Now to Save Later

Encouraging children to learn financial lessons now can pay huge dividends later — no matter what age they might be. Use these resources and lessons to guide your child’s financial education and give them the foundation they need to build strong credit, achieve their financial goals and enjoy ample opportunities as they become adults. You can get all the knowledge about economics for kids and can easily teach kids about money and how to manage their money in future..