Empowering Kids with Financial Literacy
How young is too young to start learning about finances? While there isn’t an exact age, the truth is that the sooner the better.
The earlier children start learning about money, savings, and the subjects that make up financial literacy, the better equipped they’ll be to navigate the world of finances.
You’ll know it’s time to broach this topic when your child masters object permanence and basic arithmetic. With object permanence, children can understand that just because they don’t have physical possession of their money, it doesn’t mean it’s gone. With basic arithmetic, children can understand balancing an account.
Once your child is ready, here’s how you can empower your kids with financial literacy.
Lay the Foundation with Savings Accounts:
It’s best to start with the basics and starting with a savings account lays an excellent foundation for building financial wellness. Making regular deposits to their share account helps children get in the habit of saving from an early age.
One of the many virtues of credit unions is that most require a simple savings account to establish membership (typically these are called a “share account”). Share accounts represent the member-owner’s stake in the cooperative, just as traditional investors own shares in private firms. Having a savings account entitles a child to membership and future services.
Turn Saving into a Game:
With the simple action of dropping coins into a tried-and-true piggy bank, your child can begin the savings process. The brightly colored, porcelain pig can serve as a start to saving money, even before making a deposit into their share account.
As the bank fills up, or at regular intervals, bring your child into the branch to make deposits into their share account. You can turn saving into a game to see how quickly your child can reach certain savings goals or milestones. You can also use this account to help your child save up for an item he or she really wants.
Introduce Delayed Gratification:
If you’ve made a game of savings, show your child the balance on their account and explain that if they want a certain item, they’ll need to pay for it, and to pay for it, they’ll have to take money out of their account. It’s important to differentiate between instant and delayed gratification.
Setting a savings goal is an excellent way to help your child appreciate the challenges of saving money in a low-stakes scenario. Pick something fun or big that they may not be willing to wait until their next birthday or major holiday to receive. This incentivizes strategic saving over compulsive spending.
Introduce Basic Financial Concepts:
Besides saving and spending, introduce the idea of managing money. When your child is ready to open a checking account, a money market, or CD, then it’s a great time to talk about budgeting and interest rates.
A budget can be as simple as differentiating between a weekly spending allowance and saving up to buy something big or to give gifts during the holidays.
For interest, a simple explanation is that interest is the money the credit union pays for holding your child’s accounts. If your child wants a more in-depth explanation (how interest rates are calculated and why funds on deposit impact the amount paid out), and you’re up for it, then go for it!
It’s important to promote a child’s curiosity and their desire to understand finances as much as possible, especially when it affects their own accounts.
Address Emotions Tied to Money:
Finally, address how money can impact emotions. It is all too common for people to feel shame, anger, frustration, sadness, and stress when dealing with their finances. While you don’t want your child to feel these emotions, it is beneficial to start explaining from an early age that people often have a lot of big feelings about money. It’s perfectly okay, and just like other feelings, it’s healthier for children to talk about them, rather than bottling them up.
The extra benefit for you and your child is that you have an extra source of knowledge and support in your credit union. You can both turn to your credit union for financial insights and help with finances, regardless of age or financial situation. We’re here for you!