by John Lanza
April is National Financial Literacy Month. I was sitting down to write an article on the importance of teaching kids to be money smart early when I happened upon two news items: “Stephanie Eidelman’s “Forget Cash – Teach Kids About Credit as Early as 6 or 7 Years Old” for Forbes and the “The Ultimate Play Room … at Grandma’s House” video at The Wall Street Journal’s online site. The latter video highlights a disturbing trend. Grandparents are hiring high priced designers to create special rooms in their own homes to entice grandkids to visit. On the surface, there’s something special about it, but, in the end, it just enhances the already strong societal concentration on “stuff” and on spending as a way of showing affection. If grandparents are going to spend money, wouldn’t it be better to witness a trend in which grandparents are bringing grandkids on vacations, hikes and the like — something just as special and certainly more meaningful and substantial? It reminded me just how important it is to reach families with the message that financial literacy is something that can and should be taught early.
In contrast to the grandparent largesse theme of the WSJ video, Ms. Eidelman makes an important and impassioned case in her article for the importance of addressing financial literacy issues with young children. She suggests that because credit is so prevalent, we need to be discussing it more openly with our kids. Money conversations are essential to raising “money-comfortable” kids and I think she’s right to talk with them about credit. With the frequency of credit card use amongst parents, children are already thinking about it and they are undoubtedly confused. She cites numerous conversations with her own young children to make that point, such as, “Recently, my daughter wanted us to buy something that I said was a lot of money and that we couldn’t afford it. She said ‘just pay with the credit card.’ My son said, ‘Sam, you have to pay actual money at the end of the month for whatever you put on the credit card!’ Boom! Seven years old. That’s probably one of the most important things I’ve taught him yet.”
The importance of teaching kids about credit may be debatable, but the importance of becoming a financially literate person at some point is not. It was this part of Ms. Eidelman’s article that I thought was most insightful: “We teach all kinds of things in school. But aside from reading…few things are as fundamental today as understanding credit, saving for retirement, and eating healthy. You can’t start these subjects in high school…habits are already formed.”
I’ve been insisting on the importance of teaching good habits early to avoid having to break bad habits later since my company created our first DVD, “The Money Mammals: Saving Money Is Fun,” in 2005. Our focus was to engage kids in what most understand to be a dry subject: financial literacy learning. Although many parents feel they may be incapable of passing on financial intelligence they think they may not have, it’s critical to understand that many surveys note kids are most likely to learn financial habits from their parents — whether good or bad — regardless of whether they intentionally try to teach them or not. Statistically, kids are also very unlikely to receive a strong financial education in school. Parents should know that talking to young kids doesn’t require them to understand how to make informed investments or calculate compound interest. They just need to start by teaching their kids the basics — the difference between needs and wants and helping them understand that being money smart is primarily about making smart money choices.
Starting kids with an allowance gets them comfortable handling money. Distributing that money regularly into three jars (we use Share, Save and Spend Smart) helps build good habits now that don’t have to be broken later. These lessons can help them learn that sharing money can make you feel great and even better than spending on yourself. They can also learn that saving money for longer terms goals is something anyone can do and that, when you do spend, you should think about it. It only stands to reason that handling money and making these choices are going to make them more “money-comfortable” and smarter in the long run. Sure, they’ll make some mistakes. But, who doesn’t. Think about how much you’ve learned from making mistakes.
Martin Luther King said, “This is no time to engage in the luxury of cooling off or to take the tranquilizing drug of gradualism.” In her article, Ms. Eidelman makes the case that financial literacy should be handled in schools. I agree with her, but I’ve seen years of effort met with only marginal improvement in what schools are teaching. Most of that effort has resulted in high school programs, which are too late, in my view, to start teaching the concepts. We can wait for schools to improve those programs, “to take the tranquilizing drug of gradualism,” or we can use this April, National Financial Literacy Month, to start doing something about it.
About the Author
John Lanza is the Chief Mammal at Snigglezoo Entertainment, Creator of the Dr. Toy award-winning Money Mammals DVD & book, Joe the Monkey Saves for a Goal, that helps kids learn to “Share & Save & Spend Smart Too,” and the recently published Joe the Monkey Learns to Share. Lanza also runs The Money Mammals Saving Money Is Fun Kids Club for credit unions nationwide and blogs, tweets and writes often about youth financial literacy. Find out more at www.themoneymammals.com.
Photo Credit, David Niblack, Imagebase.net