Five key financial concepts to create financially savvy youth
Teaching financial concepts can feel overwhelming to adults, but providing connects to everyday life can be beneficial.
The thought of teaching children everything they should know about money can be overwhelming to adults. Michigan State University Extension acknowledges that there is so much to know, but much of that knowledge will only come through experience. The United States Mint recommends five key concepts kids should learn about money management.
First, youth need to understand the difference between their needs and wants in order to be successful spenders. This is challenging to teach preschoolers, but as kids get closer to school age they should begin to understand this concept. Lessons about needs and wants are readily found in everyday life, such as the need for food in order to survive, but dessert is a want.
Next, they need to understand that money is meant to be both spent and saved. Youth need to see money being used for paying bills as well as buying extras. A great way to show how to budget money is by putting a dollar’s worth of change on the table and dividing it up to show how money is spent in their household. If 25 percent of your family’s budget goes towards rent or a mortgage, a quarter can represent that. Set aside a dime to show that 10 percent of the family budget goes into savings, a nickel to show that five percent is invested for retirement and so on.
Children should learn from an early age that money is earned, not given. An allowance can be an excellent way to introduce this concept if it is paid for completing chores so that they learn money and work are closely connected.
Youth also need to learn about debts and credit, even if their parents don’t use credit and have no debt. They especially need to understand interest charges and financial fees. This can be taught by extending a small loan to them, charging them interest and then showing them the amount they paid back compared to the original amount they borrowed.
Finally, they need to be allowed to make financial mistakes. By allowing children to face the disappointment that comes when they realize they wasted their money, and the pride that comes with wise choices, is a way for adults to help them become financially literate.
To learn more about youth financial management, check out MSU Extension’s Youth Money Management resources.