It’s Never Too Early to Teach Your Kids Financial Literacy

The Squeeze

• A three-year study shows a “clear trend of declining financial literacy “ in the United States, with 2 out of 3 adults unable to answer five basic personal finance questions correctly
• Financial education in high school has been shown to reduce the use of high-risk, high-cost lending products (payday loans, high-interest-rate credit cards) 
• Young adults make huge decisions about student loans, credit cards, and household budgeting shortly after graduating high school — most with no education in personal finance

It’s a truism that you never stop learning about money in life, but a more meaningful question is, well, when do you start? 

Would you believe age 3? Yes. According to a Cambridge University study, children are already absorbing the basics of how we use money (and plastic money) to acquire goods. In other words: learning about spending comes easily.

Teaching kids good money habits

It’s learning about the rest of the things you can do with money — save it, invest it, give it away — that teaches kids good money habits that can keep them from making choices early in life as a young adult that saddle them with debt or limit their choices. After all, immediately upon graduating high school, students are able to open credit cards, borrow money from alternative financial service providers (like check cashers, pawn shops and payday lenders), and sign up for student loans in the tens of thousands of dollars. These are all decisions that can have decades of impact. 

Sharae Bracy, author of the Financial Literacy for Young Adults workbook, and a Loans Associate at Strategic Financial Solutions (the parent company of Firstly^SM ), recognized the importance of financial literacy as an economics major at Spelman College. But she was motivated to put her book together during COVID quarantine: “We desperately need to be teaching this to our youth to prepare them for adult life. I was inspired to complete this book during quarantine because kids were out of school, virtual learning wasn’t as engaging, so I wanted to create something beneficial and fun that they can learn from and use in their everyday lives.”

Her book covers the full life cycle of financial tools a person will encounter in their lifetime, from an introduction to bank accounts, checks and the meaning (and key difference) between credits and debits to your accounts, to simple economic and accounting concepts —and even worksheets to write a business plan for your own Shark Tank idea. 

“I hope to see financial literacy being taught in schools — it can not only help positively impact our economy in the long run but can also create happier lives,” says Bracy, who cites studies that show that money creates anxiety and stress and can lead to divorce and family instability. “It can ultimately create better situations for everyone.”

Giving high school kids a financial literacy curriculum

Bracy isn’t alone in these beliefs: the Council for Economic Education’s (CEE’s) sole mission is to lay the groundwork that will ensure that K-12 students are financially literate by the time they graduate high school. Although 21 states currently have some kind of financial literacy program in their public schools, the quality, time, and commitment to this topic of learning vary widely. The most recent National Assessment of Educational Progress (NAEP) — which generates the nation’s “report card” on what kids are and are not learning — economics test showed that only 43 percent of 12th grade students tested at or above proficient. CEE points out that many parents and teachers don’t have the knowledge themselves to pass down, and there is not an agreed-upon curriculum.

This lack of financial literacy has a lifelong impact and is a contributing factor to the amount of unsecured debt that Americans carry, with a third of American adults saddled with credit card debt for which they “often” or “always” only pay the minimum payment — keeping them tied to their debt, and in many cases unable to build a solid financial foundation for themselves and their families. And the student debt crisis — in which many students took on debt for which they did not fully understand the long-term repercussions — has led to more than 30 percent of student loan borrowers to default, make late payments or stop making payments entirely just six years after graduation.

Financial literacy leads to less risky borrowing

And yet. Financial literacy education works. It has been shown to increase students’ understanding of how credit cards work, reduce the use of high-cost financial vehicles like payday loans, increase their focus on applying for college aid rather than taking out loans, and is positively correlated with increased asset accumulation by age 26. And 71 percent of 12th grade students surveyed by NAEP said that coursework did help them understand personal finance better.

Naysayers point out that the long-term impact on financial stability and the economy has not been proven yet, and that financial literacy alone cannot address deep-seated underlying problems like the continuing drop in real wages and skyrocketing health insurance and healthcare expenses, which are often the real culprits that lead to credit card debt and high-risk, high-cost cash loan methods to make ends meet. 

But back to the 3-year-olds, who are already learning about spending money: the reminder is that financial literacy is something children often learn from watching their parents. And the financial lessons they learn at home likely have more resonance and meaning than those they learn in school. 

So this Financial Awareness Week, take the time to sit down with your kids, whether they are almost adults, or still wee ones, and talk about money beyond how to spend it. The investment you’re making in their financial future will pay dividends forever.

Financial literacy resources:

For young kids aged 5 to 7:
“Family-At-Home Financial Fun Pack” worksheets from CEE that introduce financial concepts like saving and choose what you can afford.

For kids aged 8 to young adult:
Financial Literacy for Young Adults, a workbook by Sharae Bracy to includes the basics of banking as well as “Adulting Lessons” and core accounting concepts.

For teenagers and adult children:
Check out these articles on Firstly.com to help guide your conversations with them.
• How to Talk to Your Grown Kids About Budgeting and Credit
• How to Talk to Your Teen About Credit Cards
• Just Starting to Build Wealth? Then Start Here