About Financial Literacy
Will your child learn financial literacy in school? Not according to the latest international report. In fact, American students graded below average and failed to reach a baseline level.
That’s the assessment made by the Organization for Economic Cooperation and Development (OECD). FYI: Of the 18 countries involved the winner was China.
To put a different spin on this, let’s look at another subject taught in school: driver’s education. If a teen aces the classroom exam, is he ready to drive a car? No matter how much kids learn about driving, they do not learn how to drive a car in the classroom.
Knowledge about something does not translate into skill. Knowing the motorist’s manual does not make a skilled automobile driver. Knowing how to read music does not create a concert pianist. Watching someone to ride a bicycle doesn’t guarantee that a kid won’t lose his balance.
Knowledge is knowing. Knowledge is not skill. To drive a car, play a piano or ride a bike requires skill learned through hands-on practice.
Managing money is also a skill that cannot be learned in the classroom. Kids learn money management through hands-on practice with money.
Today’s kids need to develop a skill called financial competency: the ability to manage one’s money to pay bills on time, make reasoned use of credit (especially credit cards) and to plan for future expenses.
To become competent managing money a child has to practice with real money. Schools don’t provide real money in the classroom. Parents give their kids real money.
When parents give their kids responsibility, control and ownership of their money kids have many learning opportunities to make day-to-day decisions about a variety of expenses that are meaningful to them. This hands-on decision making is how kids learn to manage money. But like all skills, money management takes time to develop.
Do you want your kids to have knowledge about finances or do you want them to be successful managing their money?
Lynne Finch helps parents teach their kids about money from piggy banks to online banking. “It’s time to teach the kids how to manage money they can’t see or touch,” says the author of The No-Cash Allowance. Follow Lynne’s common sense approach for teaching children that money is a number with kids as young as pre-school and continuing through high school.
Who’s best for the job of teaching kids about money, schools or parents? After wading through
Financial Education: A Job for Teachers or Parents? the best idea surfaced near the end–a partnership between school and parents. How would that work?
Let’s look how schools and parents differ in how they can teach kids to manage money.
Schools offer financial literacy as knowledge. This includes:
- Definitions and examples of financial topics such as banking, saving, investing, compound interest, the stock market, loans, mortgages, insurance etc.
- Math activities using money concepts
- Classroom activities and games to demonstrate money principles
In other words, schools provide knowledge about financial matters. Of course, not all parents are conversant in these areas so schools clearly offer an opportunity for kids to learn these important financial realities.
Schools do not provide the tools for hands-on experience. This includes:
Compare financial literacy to driver’s education where schools provide a classroom education but do not provide cars. It is parents who step in and provide hands-on experience for learning how to drive a car.
Money management is also a skill that requires practice, something that cannot and does not happen in the classroom, simply because schools can’t provide real money. As with learning to drive a car there are two parts to financial education, knowledge (available in schools) and skill development (available at home).
Parents can create a financial education for a child that includes:
- Money through a combination of allowances, chores, and spending funds
- Responsibility for child to pay for certain expenses
- Day-to-day experience learning how to pay obligations on time
- Opportunities to make decisions for both fun and necessary expenses
- Responsibility to keep track of a day-to-day running balance as required in adult life
- Environment where kids manage their own money as a number in an account that is initially kept with their parents
Parents, you can do all this at no extra cost because money you give your child is money you would spend anyway. You are simply giving them control so they can be responsible for the decisions. Another winner! This financial education won’t cost you a cent.
Money management is not a skill that can be learned overnight when a teen becomes an adult legally responsible for all financial decisions. We delude ourselves if we believe that teaching financial literacy in schools will save our kids from economic disaster. We also miss the point if we believe that parents cannot teach kids anything about money.
In my book, The No-Cash Allowance, I recommend that kids manage their money as a number in an account kept with parents. Kids do not get paid in cash, instead receiving money as a deposit to their account. By using this approach kids also learn the principles of debit card transactions. Parents pay for the child’s purchase in the store; the child subtracts from the account, as one would do with a debit card. These types of experiences, not available in the classroom, help prepare kids in a very practical way for adult money management.