What is financial literacy?
Diane Morais, president of consumer and commercial banking products at Ally Bank, described financial literacy as the ability to understand and effectively use financial skills such as personal financial management, budgeting and investing.
“Financial literacy for kids is about ensuring that your child is educated on the best way to manage finances,” Morais told TODAY Parents. “It’s the basic building block for financial wellness — the skills and knowledge you need to make informed and effective decisions with your finances. The key is combining financial literacy with behaviors and a plan to achieve financial security.”
Morais equated teaching financial literacy to kids like other basic skills.
“Teaching our children good money habits is really no different than teaching healthy eating habits or good manners,” she said. “It’s important to have children learn about basic money concepts, such as saving for a goal and spending only what you can afford. It will ultimately help them lead happier, financially stable lives.”
Are my kids too young to talk about money?
Morais says no.
“It’s almost never too early to start teaching our kids about responsible spending, saving and investing,” she said. “Conversations about money should evolve to include technology; money is no longer coins and paper money.”
For parents looking to start the conversation with their kids about financial literacy, Morais offered the following tips:
1. Start small and make it tangible
Kids can set goals and learn how to help others, all while practicing their math skills.
“An allowance, for example, is one of the simplest ways to teach your kids how to save,” Morais explained. “When children see their earnings separated into ‘save,’ ‘spend’ and even ‘give’ … it brings those lessons to life.”
2. Get help from financial literacy books
Kids of all ages can benefit from books as a resourceful tool.
“A few years ago we published ‘Planet Zeee and the Money Tree,'” Morais said. “It’s fun, futuristic and ideal for teaching elementary-age children basic financial literacy concepts.”
3. Think creatively
Morais said that for older children, a creative approach helps make the lessons stick.
“Research shows the golden oldie methods of teaching financial literacy can be too dry,” she explained. “Here’s where games not only come in handy, but also yield lasting benefits like self-confidence and retention. Embedding financial interactions in the game makes learning about money easy, fun and effective. It feels less like learning and more like play.”
4. Set a good example
Remember: Kids always learn more from what you do than what you say.
“Talking decisions through may oftentimes be the best example and in-the-moment teachable event,” Morais said, encouraging parents to explain things to their children. “Tell them when you make a mistake (and) be open when you hold off buying something you really want because it’s the right financial decision. These basic conversations will go a long way towards reinforcing long-term habits for you as a parent and for your kids.”
The article “Financial Literacy for Kids: What Parents Need to Know” originally published on TODAY.