More of an audio-visual learning? Watch the free recording of the workshop we did on this topic.
Financial Illiteracy Will Destroy Our Kids’ Futures & Generations to Come
If you’re a parent, I have a warning for you today: Your child is in danger. You were in danger as a child, too. And your parents were in danger when they were kids.
And we are not, as a society, doing the things we need to do to get rid of this danger. What is this danger?
Terrible financial habits.
And why is it a danger?
When you become consumed with fear or apprehension about your long-term road ahead, it creates anxiety, stress, and many other things that cause your body and mind to break down.
It’s destructive to your physical and mental health.
If you’re married, financial literacy is a danger to your relationship’s stability. Make no mistake about it: financial literacy is a health and wellness issue.
As a financial advisor with a few decades of experience, I have witnessed the repercussions firsthand.
Aristotle got close when he said:
“Good habits formed at youth make all the difference.”
If I had been sitting with Aristotle when he said this, I would have suggested that he add a single word that I’m sure he just forgot to mention that day. He probably meant to say the following:
“Good FINANCIAL habits formed at youth make all the difference.”
Add Money Discussion and Exposure to Your Parenting Checklist
Studies show us that almost 80% of people feel anxious about their financial situation. That thinking controls their lives. People are worried about their financial future–not having enough for retirement, keeping up with the cost of living, managing debt, and so much more.
This pressure leaves us continuously fatigued and out-of-sorts, interfering with good sleep and concentration at work and in the home. These ramifications have a negative compounding effect that leads to all sorts of life problems.
It is said that no individual can save the world. But we can, as a society, get our youth started on a better path. And while it might be too late for me to save our generation, it isn’t too late for us to save our kids.
The good news is you’re already trying to be a good parent and are on the right path. I just want you to change your priorities a tad bit.
We, as parents, set up mental check boxes that we know we need to check off before our just-out-of-the-womb child heads off to college, maybe hundreds or even thousands of miles away.
And it is then that we, as parents, will get our report cards. How did we do in each subject as parents?
For example, the physical health boxes. Did we, as parents…?
- Provide them with enough food each day and the knowledge to eat healthily
- Put them in a sport or physical activity to keep them active
- Limit their sweets
- Have the drug/alcohol talk
- Teach them about safe sex
Another good category is the “college boxes.” Did we do our best to help our children get into the best–and right fit–schools they were capable of (and where they will flourish)? Did we encourage them to do their best in the following?
- Good grades in their classes.
- Preparing for the ACT/SAT.
- Exploring and finding passion in extracurricular activities.
- Developing good relationships with teachers and coaches and asking for letters of recommendation.
- Visiting and applying to what seems like a thousand different colleges.
Your kid gets into college? Check! Every parent breathes a sigh of relief and feels the weight of the world lessen on their shoulders.
Unfortunately, as we are starting to see just from our own generation, we have missed one of the most crucial check boxes of all: the money talk. If we miss this one, if we don’t get it right, then all those other significant talks and life lessons become less relevant or even obsolete.
A life without a general understanding of finances and comfort around dealing with money is one that generally leads to poorer health and poorer relationships.
What Needs to Be Taught? And Why Aren’t Parents Talking to Their Kids About Money?
I’m not talking about sophisticated money strategies. I’m talking about the basics – SIMPLE MONEY HABITS:
- Budgeting
- Saving
- Basic investment principles
- Crucial money concepts
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- Compound interest
- The value of a dollar
The basics will allow your kids to stay on a clear path—a path with guardrails and distinct blazes so that they know they are on the right track.
Why are parents not having the money talk with their kids today? There are a multitude of reasons: either they aren’t thinking about it, or they don’t have the bandwidth to deal with one more thing, or they aren’t prioritizing correctly. Maybe they want to protect your kids from becoming overly focused on the pecuniary trappings of life.
The most common reason I hear, however, is that parents don’t feel qualified. Heck, most of us adults/parents know we’re not getting it right ourselves. If we’re not getting it right ourselves, how are we supposed to teach our kids what we are failing at?
Deep down, many parents feel this way about their financial situation, which makes them certain that they shouldn’t be teaching their kids about money.
Ok, I get that. If not us as parents, then who?
- Schools: Where high school was once a desolate wasteland when it came to financial literacy, there are signs of positive change. In just a few years, the number of states that required a personal finance class to graduate increased from 9 to 25. Problems still remain, however. In many cases, there is not enough money, not enough time, and not enough teachers who feel confident teaching the subject. Even the classes that do exist in many high schools and colleges are small-class electives that cover impractical or advanced topics before teaching foundational information. Lastly, good money habits are something learned through years of practice and action. One class is a solid start, but it might be too little, too late.
- Grandparents: They likely feel the same way you do. In fact, you might be supporting them financially right now, which would make them qualified to teach your kids what not to do.
- Facebook/Instagram/TikTok: Have you watched what your kids look at on those social media sites? Trust me. While the occasional gem can be found, social media tends to provide contradictory or just plain wrong information. Even with the good stuff, social media does not provide a sufficient amount of financial literacy lessons.
Here’s the punchline: If we as parents are not encouraging our children to learn basic money concepts, then we are kicking the can down the road, adding another generation after us to face the same challenge.
We can either stop the insanity and commit to ending this problem, or we can keep developing poisonous bad habits for future generations.
Why You Should Teach Your Kids Basic Money Foundations Even If You Have Been Terrible with Money in the Past
Who said YOU have to be an expert on money to enable your kids to get an education on money? You can still instill in your kids an appreciation for learning the foundational basics to excel in a given subject.
You’re likely not a professional bike rider, but you taught your kid how to ride a bike. And your parents did the same thing, and so did their parents, and their parents.
And why did you teach them—with you standing right next to them or maybe on a turf football field–? So they wouldn’t get as hurt as starting on the street. You don’t want your kids to get hurt. It’s normal. It’s natural.
Even if they haven’t ridden a bike for five years, they can get on one and pick it up immediately at any given moment. The same goes for helping your kids build a foundation of money vocabulary and habits.
As parents, we spend all this time worrying about our kids. I would propose replacing one of your top five worries with the concern that they may be unequipped to make fundamental financial decisions in the future.
So, How Do You Get Started?
It’s actually quite simple: start by opening up the discussion at home and not making money a taboo topic.
Have you ever learned a new word or concept or had a friend tell you they got a new job at a company you’ve never heard of? Isn’t it funny that the second you see or hear something new, it pops up in conversations, online, on television, and in the newspaper?
This is not some cosmic twist of fate. It is known as the Baader-Meinhof Phenomenon, or in normal parlance, The Frequency Illusion. In reality, the frequency of seeing or hearing about this new thing has likely not changed. Instead, your brain is learning, recognizing, and making connections to build on! You now have a foundation, an awareness, and context to learn even more about it as you see and hear about it in your typical day.
The same thing happens with money foundations:
- As a young ‘un, you understand the difference between a penny, nickel, dime, and quarter.
- You learn about spending and saving. Then, you build this foundation into budgeting, investing, and compound interest.
- When your child gets that first job out of college, it’s now their turn to start checking the boxes: 401k retirement plan, check. Health insurance, check. And so on.
Getting More Specific
You can provide allowance opportunities within your own home (which, if you start at a young age, is not a significant expense on your part). You are not pampering your child; they need to earn it. Instead of offering money for household chores, which they should be doing anyway, offer incentives for LEARNING/GROWTH.
You can get as creative as you want with these incentives. There is plenty of information all over the place for kids to learn about money.
Use online resources. Encourage your kids to take personal finance classes if their school offers them or learn on their own via Khan Academy or other trusted, private resources.
You can give them a subscription to Money Magazine or the WSJ or help them find other websites or YouTube channels that teach kids about money.
I must reiterate, though, that the most important thing you can do is talk to your kids and listen to them. Be vulnerable and honest. Tell them about your financial successes or failures. Failure is one of the best teachers. Showing them what not to do is as important as telling them what to do.
Perhaps you might let them see your bills at home – you have enough of them to show, don’t you? Let them pick out the groceries with you as you’re shopping so they begin to understand how much things cost. Let them see that electric bill.
Just share.
You don’t need to be a money pro to let them get exposure and pick up the lingo. When you start treating them a little more like an adult, they might start acting more responsibly.
And isn’t that the point of parenting? Providing your kids with a runway to launch and letting that launch be better than yours. Don’t make the runway longer. Instead, give your kids the tools for a successful launch and let them take it from there.
Author:
Thomas Henske, CFP®, ChFC, CLU, CTS, CFS, CLTC, CES
Founder. Total Cents
Want to learn more? Check out the recording from the live event we held with Tom.