Kids can learn lots of good information in school, but as we all know, what happens in the classroom often stays in the classroom. One exception is driver’s education where teens can’t wait to get done with the book learning and get their hands on the steering wheel.
However, if your school has financial literacy classes your child will get some book learning but no behind-the-wheel money management training, because schools can’t provide real money for practice. Whatever a kid might learn about credit, interest, loans and investing is, in his eyes, not relevant to his own money.
So what’s missing in financial literacy curriculum? It’s three important elements of money management that only parents can provide. Interestingly, unlike driver’s education parents can give their kids a money management practice at home at no additional cost to them.
1. Money All parents know that kids like to spend money. However, anyone can spend money, with no skill or practice required. What today’s kids need to learn is how to manage money that they receive and spend in both cash and cashless forms (virtual money). This includes credit spending, electronic transfers, debit cards–and other forms of virtual money that hasn’t been invented yet. Managing money that exists as a number in a financial account requires more planning than spending a handful of cash.
2. Responsibility Parents and children can agree on certain expenses that become the child’s responsibility, setting the stage for managing expenses as adults. Any child can take money to a store and buy something, but it takes thinking and planning to manage money for expenses and fun, as adults have to do.
3. 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.
It’s also important for a kid to have a real-world experience, meaning that her money has to be part of a stream of funds that has both a past and a future. Parents have to provide funds in a consistent way, much like they provide resources for a child to learn other skills, such as sports or music.
Without these elements it doesn’t make any difference how much knowledge a kid learns in a financial literacy class. 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. Kids only learn to manage money by making decisions using their own money without parents controlling them at each turn. This is what behind-the-wheel practice does for young drivers.
For all parents there will come that day when they give their kid the car keys for that first solo drive. Likewise, parents need to 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.
Parents can help their kids start developing an essential life skill, that I call financial competency, being the ability to manage one’s financial resources to pay bills on time, make reasoned use of credit, and plan for future expenditures, as well as use some for fun and recreation. Next time we’ll look at what is a kid’s money and how this relates to the adult world of money.Follow me on social media: