For most adults, trying to get good with money is constant work and a struggle. We know the value of it and how having a lot of it or too little of it can impact our lives.
For many of us, particularly, in the Black and Caribbean community, having access to money, or at least, the life-changing kind of money was not a characteristic of our lives growing up.
We watched our parents struggle with earning money while desperately trying to make every dollar stretch. Some of it came down to their social economic status, lack of education and limited job prospects. However, a part of the problem was financial illiteracy and their inability to manage money.
As children, many of us didn’t learn valuable lessons about money management from our parents because they simply didn’t have the financial know-how to manage money wisely.
Now that we’re adults raising or supporting children of our own, how do we avoid the financial missteps of our parents’ and grandparents’ generations to raise money-smart kids?
In this article, I provide 6 tips for raising money-smart kids.
What is Financial Literacy?
Financial literacy is a very important skill to have if you want to be money smart and build wealth. But, what is financial literacy and how can you teach it to your kids?
Financial literacy is a set of financial skills that helps you to understand and manage your money effectively which includes personal financial management skills, budgeting and investing.
Financial Literacy Statistics
Having a sound understanding of money, the principles of money and how to make money work for you are concerns of many who don’t seem to have the skills necessary to build a financially sustainable life.
In the U.S.A, general financial literacy statistics show that 25% of Americans say that they have no one to ask for trusted financial guidance. Meanwhile, 42% of adults worry about meeting their daily expenses as of 2020. 40% were concerned about their financial status, while 37% reported they were just getting by financially.
When it comes to the differences in financial literacy between Black Americans and white Americans the gap was clear. Black American financial literacy lags behind their white counterparts by 17%.
Black Americans answered an average of 37% of the study’s financial literacy questions correctly, whereas, white Americans answered an average of 55% of questions correctly.
While the data is quite worrying for adults, it seems like teens are faring better. As of 2021, 75% of teens report learning about personal finance from their parents. 52% of teens learn from school and 42% from social media.
Additionally, 86% of teens were interested in investing, but 45% said they didn’t invest because they didn’t feel confident.
In Jamaica, a National Baseline Survey on Financial Literacy completed in 2012 found that although the financial literacy of Jamaicans was comparable to other countries like South Africa, Germany and the UK, in the area of financial knowledge, only 47% of Jamaicans had high score on a financial knowledge survey. This is lower than Germany (58%), and the UK (53%) but higher than South Africa (33%).
How do you raise money-smart kids? Here are 6 ways to raise money-smart kids who will manage their money wisely as adults.
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1. Start Early Saving to Get Good with Money
The first step is to start early. Children are more likely to develop good money habits if they’re introduced to money management principles at an early age. It’s never too early to start teaching them about saving and spending.
You can teach your kids about saving by giving them a piggy bank or a money jar which they can fill with money that they get from doing chores or from grandma’s bosom 😊.
Check out some great piggy bank options here.
If your kids need a little encouragement or nudge, why not offer them an incentive? For example, you can tell them that if they save a certain amount, you will match what they have in their piggy bank. I don’t think any kid would give up the chance to double their money.
Pro tip: If you plan to offer an incentive for saving, stick to it and make sure that your kids know the terms and conditions of the offer, you may even want to draw up a contract. This technique will be teaching them a valuable lesson about financial institutions for later life.
2. Teach Money Management and Budgeting
Jason Butler, financial wellbeing expert and founder of My Money Chronicles, suggests that a good way to raise money-smart kids is to teach them good money management and budgeting skills.
Jason shares his debt story and offers advice to his followers on how to become financially stable through debt reduction strategies and managing multiple streams of income.
Once your kids are saving and earning, they need to learn basic budgeting skills that will allow them to better manage their money.
A budget is a spending plan that allows you to estimate how much money you will spend over a certain time. Your kids will need to learn basic financial terms like gross income, net income, expenses and deductions, and discipline like delayed gratification to meet financial goals.
Budgeting helps you to take control of your money, reach your financial goals and keep track of your spending which are the essentials your kids should know about.
There are plenty of budgeting and finance apps that are available to get you started.
3. Teach Financial Responsibility to Raise Money-Smart Kids
Another tip from Jason Butler is to teach your children financial responsibility. Being financially responsible is living within your means, spending money without excess and paying bills on time.
Financial responsibility requires money management skills and discipline. If you want to raise money-smart kids, teaching them how to be financially responsible at an early age is very important.
Much of our behaviours and what we know today as adults were learnt in childhood through observational learning.
Children are more likely to repeat behaviours that their parents and adults in their environment model. If you want to raise money-smart kids, you need to model financial responsibility to your children.
4. Money-Smart Kids Know the Value of Money
Your kids should not be under the impression that money grows on trees. While you don’t want to burden your kids with every financial decision you make, they also need to know the value of the things they get and the life they have.
Simply put, your kids need to know that you work for money and that should be reflected in your spending.
A good way to teach your kids about the value of money is to encourage them to get a part-time job. This is not only a great way for them to earn their own money but it also teaches them to be responsible.
When they want to buy something or go to an event, let them save up for it instead of giving them the money or paying for it.
If your kids are younger, allowances are a great way to teach your kids about the value of money. You can think about tying their allowances to chores, so they understand that earning money requires work.
5. Talk about Financial Topics with Your Kids
As I said before, while you don’t want to burden your children with every financial decision that you make, however, talking to your children about money matters is a good way to raise money-smart kids.
Talking to your kids about money can include conversations about the family’s values and principles about how money, how to spend it, different saving options, budgeting, borrowing and investing.
During these conversations, you should make sure that children understand basic financial terms and concepts, such as interests, stocks, credit and debit cards, repayment, debt and more.
While children are never too young to learn about money, you should always use age appropriate-language so that your kids understand you.
6. Read More Financial Literacy Books
All of these tips may seem overwhelming if as a parent, you’re still developing your financial literacy. You may be asking yourself, “how can I teach my kids about money if I don’t know or I’m still learning?”
The simple fact is, you can. Many of us didn’t have the financial tools that would have enabled us to make better financial decisions, so we’re learning too. Financial literacy is a skill that develops over time.
Luckily for us, there is a lot of financial literacy information that is available at our fingertips. We live in the information age and we should take advantage of that. One great way to do so is by reading books about money to your kids and financial literacy literature for yourself.
You can also speak to a financial advisor at your local bank or investment firm.
Having said that, we should also be wise when we seek financial advice to make sure that we cross every “T” and dot every “I”.
Additionally, if you are seeking advice from a wealth advisor, make sure that you check their credentials and that they belong to the relevant regulatory bodies. After all, financial safety is a part of financial literacy.
Check out these great books for learning and teaching your kids about financial literacy.
I hope this article has given you some ideas for how to raise money-smart kids. The most important thing is to start early, and keep it fun!
Start with these 6 tips today to get your kids off a great start to achieving financial success. There are so many creative ways to help your kids learn about money and these were some of our tips.
Do you have any tips you’d like to add to the list?