Why deciding to teach kids finance was the right thing to do

The idea came up when I was watching the news and one story caught my attention, it was about a man who withdraw $15k from FTGS (like a brazilian employee’s dismissal fund) and spent half of it in one weekend in a five-star hotel. For me it sounded as stupid as possible, Brazil was going through a crisis, people were losing their jobs, the default rate was going up each month, so the government decided to allow people withdraw their innative FTGS accounts, usually for home finance or other long-term financing, but the goal was to brazilians clear their debts.

Although that man, who did not make more than $60k a year, decided to spent $7k in a luxury weekend. Throughout the interview we can see that probably this money was not intended to be spent like this, the man confessed that it was not a good idea. At this time it became clear for me that this man did not have a clue of how that money was spent that fast and furthermore he probably did not have any type of expense control or investment planning, it was just: money comes in, let’s spend it.

A whole country problem

Digging deeper I realized that brazilians have some serious financial problems, a research on September of 2016 showed that almost 60% of all brazilian families had debts on that month and even when sometimes this percentage became lower at certain months, at least in the last ten years, not once the percentage was below 50%, so we can conclude that one out of two families have unpaid debts.

Researches made by World Bank showed that 44% of brazilian population did not have enough money in case of an emergence (8° worst in the world) and that only 4 out of 100 brazilians save money for retirement (14° worst in the world). Research showing the percentage of the country’s population that saved any amount in the last 12 monthsWe can easily find some explanations for this phenomenon like the heritage of high-inflation era, the lack of surplus or restrict credit access, but it all converges to little knowledge of finance, even among the A/B classes. In a society based in consumption it is easy to lose yourself in shopping, but financial education has a high correlation with savings. Even savings being the number one problem, the A/B classes, which theoretically, are schooled and therefore have a better financial education, struggle at concepts like diversification, compound interest and relationship between risk and profit.

Innovative approaches

Innovative methods for stimulating savings are being studied around the world because the traditional approach, telling people they need to save for the future, is simply not working. One of them, is a research made by Stern Business School, in which a team of researchers tested the effects of showing young people in their 20’s how they will look when they are old. They exhibited images of older people to a first group.

A second group interacted, in a virtual environment, with versions of themselves, aged by computer graphics, like their old avatars. After three series of questionnaires, the researchers were cheerful by the greater willingness of the second group to save for retirement. The study was published in November, 2012. “We wanted to see if the photo-aging experience could make someone feel more connected to themselves in the future. It worked, “says Hal Hershfield, a marketing professor at Stern Business School in New York and lead author of the research.

One of the mechanisms that prevent savings is that young people find it difficult to exchange immediate pleasure in the name of the comfort of a “stranger” — himself, in 40 or 50 years. By bringing the young man closer to the old man who will become, the avatar breaks this distancing.

Another interesting approach that has being developed is the idea of preparing children for the need to save money. “Education in childhood is very important. Having fictitious banks in Japanese schools encouraged children to save more” says Annamaria Lusardi, an economics professor at George Washington School of Business.

Why children?

Seeing the statistics on debts and savings it is pretty clear that adults do not know much about money, but to help the next generation avoid the mistakes of their elders, and to live financially fit lives, they need to be taught the essentials about finance. Usually, parents start teaching kids about money at home, some values on working with money, providing an allowance, stimulating savings so they can buy the thing they want, but it all comes to the point that is the parent's responsibility to teach it.

So, is not that funny that parents who struggle in this matter teach their kids about this? Even leaning in some book on financial education, it seems difficult to both of them. Nowadays some schools identified the importance of the subject in kids’ life and created finance classes, but as almost every class in regular school grid they are the theoretical and this subject is essentially practical.

Some research on the internet showed me a lot of books and games teaching kids the principles of finance, so I came up with the idea that joining school’s theoretical lessons and parents’ practical method would be the best of the two worlds, but instead of a game or a book, I would provide a whole experience to the kid with its parent and go along throughout its childhood, creating a platform where they both work together maximizing the content learned, producing solutions to teach kids the importance of work: for example letting parents create a small price to some household chores; or savings: where the kid can administrate its allowance and establish goals.The goal of the solution is not suffocate children with content, just provide some tips and guide them to the right path.