Parents expecting schools to teach their children about financial literacy are going to be disappointed after reading a recent Survey of the States that shows that the U.S. is going backward. To put a different spin on it, let’s compare financial education with driver’s education.
Every teen knows that before you can get a driver’s license one has to take the classroom course. This is where potential drivers learn the rules of driving; they develop a knowledge base about driving rules and regulations. Memorizing the motorist’s manual does not make one in to a skilled automobile driver.
Teens can’t wait to get out of the classroom and get their hands on the steering wheel. For a teen the learner’s permit is literally where the rubber meets the road. All states require some prescribed amount of supervised hands-on practice to provide the opportunity for a teen to develop the skill of driving a car.
As with learning to drive a car there are two parts to financial education, knowledge and skill development. I think we can all agree that financial literacy at its core is knowledge.
With financial education, schools can provide knowledge, but cannot provide hands-on money management training. This is because schools are not in a position to provide real money for practice, just as schools no longer provide automobiles for driving practice.
Whatever a kid might learn about credit, interest, loans and investing is, in his eyes, not relevant to his own money. School learning often stays in school. Financial literacy classes do not provide hands-on practice in the classroom. It’s like learning to play soccer without ever kicking the ball.
So what’s missing in financial literacy curriculum? Hands-on practice. But here’s where parents have to step up. To give kids hands-on practice managing money parents need to provide three equally important elements: money, responsibility and control.
Money The main ingredient in allowance is money. Through as system like “The No-Cash Allowance” you can provide a reliable, consistent process for your kids to receive, spend, allocate, and transfer money. Your kids will be in charge of keeping track of their money in an account, initially kept at home with you as the banker.
Spending money is easy and is not the same as managing money that exists as a number in a financial account. This is the future reality for your children. You can give your kids hands-on practice now.
Responsibility Giving kids responsibility for certain expenses sets the stage for managing expenses as an adult. Parents and children agree on expenses that are relevant to the child, such as school supplies, some clothing, entertainment, and cell phone. This approach offers a child practice managing money for both fun and necessary expenses.
Control As difficult as it may be for parents to accept, it is essential for kids to have full control of their money so they have the opportunity to make both good and bad decisions, learn from them, and go forward. A $10 spending mistake by a kid will be a big learning experience. A $1000 spending mistake by an 18-year-old can be a financial disaster with lingering consequences.
By providing all three elements a child has their own version of real-world experience, where money is part of a stream of funds that has both a past and a future. When parents provide funds in a consistent way, much like they provide resources for a child to learn other skills such as sports or music, kids have a reliable system to work with
This financial education can begin even before a child starts school and can provide ten or more years of actual hands-on practice with money management. It is the combination of using money, along with having total control and responsibility for required expenses that gives kids practice developing money management skill.
Knowledge alone is not enough when it comes to money management. Kids learn through practice making decisions using their own money. This is what behind-the-wheel practice does for young drivers.
For all parents the day will come when they give their kid the car keys for that first solo drive. Likewise, parents can give their kids control of money and let them manage it by themselves so they can learn to steer their way through the money management maze that is in their future.Follow me on social media: