How Credit Unions Empower Children’s Financial Education
Ever swell with pride after noticing your kid inherited your competitive spirit, artistic eye, or ability to carry a tune? But a less-than-comprehensive understanding of financial literacy? That last one’s not going on the fridge. Teaching kids about budgeting and saving money is one of the more important life skills we can pass on. However, since many adults still have questions about the best way to manage their money — combined with the fact that today’s kids rarely see cash! — paving the way for children’s financial education can feel like a challenge.
Fortunately, it’s not a task you have to take on solo. There are many resources to help you explain financial issues to kids in ways that make sense to them — and that you can feel confident about. For example, your local credit union likely has credit union financial education programs specifically designed with kids in mind! Meanwhile, here’s a look at how to get started with children’s financial education.
Why is Financial Education Important for Children?
First, when discussing financial education for children, it must be age appropriate. If you hit them with information too advanced for their age, their eyes will glaze over. Depending on the child’s age, a relevant concept could be anything from learning how to count coins to understanding the basics of investing.
Children get a lot of benefits from early financial education. First and most apparent, kids who learn about finances early are more likely to budget and save successfully. That skill will stay with them from when they get their first allowance all the way to managing their retirement funds.
In the short term, having a better understanding of money helps kids appreciate what they have. After all, you’re more likely to take care of your things if you realize replacing them costs money that could otherwise go to something more fun.
There are significant long-term benefits, too. Research shows kids with sound financial literacy enjoy a range of benefits well into adulthood, including:
- better credit scores,
- a higher net worth,
- more retirement savings, and
- less debt.
Additionally, the emotional benefits of financial literacy are often overlooked. Kids with a good understanding of money feel less stressed about the family finances and, later, their own.
As parents, we often want to shield our kids from the less-fun parts of adulthood. But kids are perceptive — they know if their parents are stressed about something. Better to give them the facts (“We’re trying to figure out how much we can spend on vacation this summer.”) than to let them fill in the blanks on their own.
Ways to Teach Financial Education to Children
While there are many ways to begin a child’s financial education, there’s one thing you want to avoid: a big info dump. When teaching kids about budgeting and saving money, it’s better to provide a little information, a bit at a time, gradually building each ”lesson” on the prior one. The earlier you start, the better. In fact, as soon as children have mastered the concept of numbers, you can introduce basics about finances, budgeting, and saving.
The most effective way to teach children about money is by modeling good money habits and discussing why you’re making your own choices. Ensure kids know they can come to you with questions about money, too. You don’t need to involve kids in detailed discussions about the mortgage or how to spend your bonus, but they should have an idea of how you make financial decisions and how that reflects your family’s values.
Giving them age-appropriate financial tasks provides vital experience in handling money. Depending on your child’s interests and temperament, you can use games, apps, and books to supplement those tasks and discussions.
Financial Literacy at Every Stage
Every kid is different in how and when they learn. Below is a guide to the financial education concepts that generally correspond to each stage of childhood — and how best to share them.
Financial literacy for preschoolers
For preschoolers, financial education starts with the basics:
- What is currency?
- What different denominations mean.
- How to count.
- Why money is useful.
Kids at this age learn best when actively engaging with the topic. It can be helpful to use cash during the education process so they can connect money to purchasing. (Our increasingly cashless society is convenient for adults but makes it hard for kids to visualize the concept.) A toy cash register and play money can go a long way in helping kids engage with and understand financial concepts.
Financial literacy for elementary school
Financial education builds on the basics for kids in early elementary grades by improving math skills and familiarizing them with financial institutions. In addition, kids can increase their confidence in handling money with the classic piggy bank or through a kid’s savings account at your local credit union.
For slightly older kids in the upper elementary grades, now’s the time to start discussing the importance of saving. For many families, this is when they give their child an allowance and let them make small purchasing decisions independently — with some parental oversight.
Financial literacy for middle school
Middle school students are ready to learn about more advanced financial education topics. For example, children can start earning money from small jobs or managing a larger allowance at this age.
Transitioning a weekly allowance to biweekly or monthly helps them learn how to budget for more extended periods. Around this time, kids are likely ready for more freedom to decide about spending their money.
Additionally, kids this age can conceptualize non-cash transactions, so if they don’t already have a savings account, it’s time to set one up. They can use it to save for bigger-ticket items and develop two essential skills: setting goals and delayed gratification.
Financial literacy for high school
High school students are moving closer to independence. At this age, they should have even more freedom to manage their own money — although you should still have some oversight.
Many kids this age take on a part-time or summer job. This means it’s time to discuss taxes and emphasize how to budget for needs, wants, and longer-term savings. If college is in your child’s future, that should also be part of the conversation. If your child is interested, this is also a good time to start talking about the importance of investing and the many forms it can take.
Finally, if you’re just starting to teach financial literacy to an older child, no judgment. They’ve probably picked up quite a bit already! Just review the ideas from the earlier age groups to ensure they don’t have any gaps in their knowledge.
Practical Skills to Teach Children About Money
Talking about money can be nebulous to kids, but managing money takes practical skills. So for a solid financial education, ensure your kids develop the following four skills while still young. The payoff for your efforts: They’ll have an advantage for the rest of their lives.
- Saving. By elementary school, kids can conceptualize money and plan ahead, which means it’s time to start saving. Consider setting goals for how to use their allowance and any other funds they receive, such as birthday gifts. For example, a goal might be to donate 10%, put 30% into savings and the rest they can spend. As they get older and their savings grow, they can explore your local credit union’s other options, such as CD ladders and savings bonds.
- Spending. Starting in elementary school, kids should have increasing autonomy in spending their money. (Within reason. You can veto unrealistic purchases like the pet pig they have their heart set on.) Yes, it can be hard to watch them make wasteful purchases or decisions they’ll come to regret. But it’s essential to learn how — and why — to shop wisely. Better to make those mistakes now, when the stakes are the cost of a Pokémon card versus their first car. You may also consider using an app that helps you both track and manage their allowance and spending. (Your credit union may offer such a program.)
- Budgeting. Once your child has a little more money to play with, it’s time to learn how to budget for what they need versus what they want — and how much to spend on each. At this age, peer pressure can be intense. Having the newest sneakers/designer bag/technology can feel like a need. Your job is to help them learn how to make wise choices.
- Investing. This is generally best left for high school kids, although some younger kids may be interested, too. Investing is complicated, and many adults use an advisor to help them make decisions, so keep it simple for now. Key concepts they should understand include how interest/returns work, that different investment types have varying amounts of risk and reward, and how to evaluate a given investment's potential risks and rewards. To get them started, look for ETFs or mutual funds that have low fees, low minimum investments, and are geared toward beginner investors. In most cases, this is likely not the age to jump into more potentially complicated options, like crypto or currency trading.
The Role of Parents in Children’s Financial Education
Parents are a child's most important teacher, and financial literacy is no exception. Even when you're not actively teaching them, they learn from watching what you do and how you talk about money. So don't shy away from including them in appropriate ways in discussions of household finances.
Little moments — explaining why you bought the cereal on sale or talking about why you're leery of investing in a risky stock — add to your child's financial literacy bit by bit without feeling like instruction.
Schools can play a vital role in children's financial education, too. Not all schools include it in the curriculum, but more states require it. If you're not sure how your school incorporates financial literacy, ask. The answers can help you better focus on areas less likely to be learned in school.
Further Resources on Teaching Children About Money
You aren’t on your own in teaching your children about budgeting and saving. Check out the links below for more ideas — broken down by age — on what, when, and how to teach kids about financial literacy.
- World of Cents: The National Credit Union Administration (NCUA) offers this fun, interactive game to teach kids age 5 and up about financial concepts.
- MoneyGeek: Offering a variety of activities and resources related to teaching kids about finances, this site breaks down potentially complicated topics, like compounding interest, for kids to understand.
- Financial Educators Council: Has tips and strategies based on best practices for teaching financial concepts in ways children at different ages and stages will understand.
Don’t Go it Alone
Taking on the task of teaching kids financial literacy can seem monumental. Fortunately, you have people who can help with everything from information on opening a kid's account to resources on children's financial education. Find a credit union near you with comprehensive credit union financial education programs for kids by using our Credit Union Locator Tool.