Financial Capability for Youth
In 2004, Congress designated the month of April as National Financial Literacy Month. In the credit union industry, we also celebrate Youth Month in April! This fortuitous overlap of awareness-raising financial health initiatives means there is no better time to start teaching kids about financial fitness. And Cutting Edge is happy to help along the way with youth accounts, free coin counting, financial education materials, free financial coaching, and more!
Today’s youth face a financial marketplace that is more complex than the one faced by previous generations. Financial capability is knowing how to spend wisely, manage credit, and plan and save for the future. The government website youth.gov identifies five areas of financial literacy and capability that a young person should learn about for the best future outcomes with financial management:
- Banking practices and managing your money
- Savings and investing strategies
- Credit use and interest rates
- Frauds, scams, and predatory lending practices
- Public and work-related benefits
Many adults also struggle with these same concepts – so how do you teach your children or other young people in your life these financial concepts if you’re not sure yourself? There are many free and reliable resources available online from government entities, financial institutions, and consumer protection groups. Here are some of our favorites:
Finally, it’s important to model healthy financial habits to your kids and lead by example. Here are some easy steps you can take today to begin help your children create a solid financial foundation:
- Encourage your kids to earn money through work, and consider giving your children an allowance – Help your children come up with a list of responsibilities or jobs they could do for pay. Taking on these responsibilities and earning money for doing so is a great first step in preparing your kids for having a job and learning the value of their work.
- Start money conversations early (in an age-appropriate way), and involve your children in major family purchases – When your family is planning on making a major purchase like a home, new vehicle, etc., include kids in the process. This is the perfect exercise to teach them about the importance of doing research and saving before making a big purchase, comparing products and prices, the cost of financing, and so on.
- Teach your kids about delayed gratification, and explain needs versus wants – This can be as easy as reminding children that we are “just looking” when you find yourself walking down the toy aisle at the store. Teaching kids the concept of delayed gratification can help combat the “buy now, pay later” mentality that can lead to unmanageable credit card debt. Helping children decide if an expense is a necessity or a nice-to-have will not only prepare them for budgeting later in life, but understanding a want versus a need will also encourage kids to save up for those wants and will feel extra rewarding when they can buy it!
- Let your children make spending decisions with their own money – sometimes kids receive money as a gift or from their allowance. Should you let them spend all of it during your next trip to the store, or should you make them save up the money for that new video game they’ve been asking for? It’s important to give your kids the power to decide what they want to buy with their money because it will help them understand the need for saving. Plus, it’s better to make a mistake at 12 with $50 than at 35 with $50k. Since the main goal is to let them learn from their financial choices, try giving them total control over how they spend it.