Teach kids money-management, not just abstract math

New skills.
New skills.
Image: Reuters/Rick Wilking
We may earn a commission from links on this page.

Americans are severely lacking when it comes to financial literacy.

Right before the global financial crisis of 2008, economists were shocked by the lack of savings set aside by American families. Average savings at that time dipped into negative territory for the first time since the Great Depression, which meant that the typical consumer was spending more money than he or she actually earned.

Not only were Americans not setting aside anything for an emergency fund, but they were also going into debt month after month—a real recipe for financial disaster. The warning signs were loud and clear, and soon the nation fell into one of the worst recessions in history. As Senior Economist for the Credit Union National Association, Perc Pineda says, “Citizens who are financially literate will have better coping mechanisms when faced with an economic slowdown.” Today, the majority of Americans are still living paycheck to paycheck. A survey of 4,000 adults by the Federal Reserve revealed in September 2013 that only 39% of adults had adequate funds saved to cover three months of expenses.

Just 48% of respondents said they can completely cover a hypothetical emergency expense of $400 without selling something or borrowing money, and a 2015 Retirement Confidence Survey, reported by the Employee Research Institute and Greenwald & Associates, found that 26 percent of workers between the ages of 45 and 54 haven’t even begun to save for retirement.

Part of this is the result of a lack of education in how to manage money.

Financial literacy—understanding how financial systems work in America, and why they are trustworthy—encourages people to save their money, and to put their money in the capable hands of financial institutions. (Financially literate individuals are also less likely to become victims of financial fraud, and other predatory practices such as payday loans, vehicle title loans, cash advance products, and other high-cost installment loans and open-end loans.)

Saving is also vital to the health of the greater economy. Saving in financial institutions are usually allocated for business investment spending, which provides the funds necessary for businesses to start, maintain and grow, which, in turn, leads to job creation and economic growth.

So it is critical that we take steps now to raise the literacy and numeracy rates among United States citizens. Committing to financial literacy initiatives will improve the American economy— and individual consumers’—resilience in times of crisis.

The starting point is education, both at home and at school, and the key is to start early.

It’s best to teach children through hands-on experience; however, if a parent has concerns regarding their ability to teach their kids about money, there are a number of free reliable tools and resources that can help. One great resource is the Toddlers to Teens: Raising Financially Responsible Kids e-book which provides age-appropriate information (from three years to 16 and up) and activities for talking to children about money.

Have your child help you find ways to save when going to the store by using coupons or by purchasing the best deal. As they get older, you can have them assist with banking transactions, but it’s also important to let children manage their own money. Programs like and are great for reinforcing the idea that money has value and allows them to better understand the concepts of saving, spending and budgeting.

For teens that are already in high school, financial lessons should be based in the real world, especially since they may already have a job. Parents can help children avoid irresponsible mistakes in the future by teaching them about financial topics related to investing, interest, banking, and how credit and debit cards work. Get them a prepaid card now so they can get used to using a debit card. Many of them come with great parental controls that will allow parents to load money on the card, such as their allowance, set purchasing limits and monitor their activity. Once they’ve demonstrated responsible use, help them apply for a secured credit card in their name so they can begin to build credit.

But it’s not just a family responsibility. To supplement what is being taught at home, schools must incorporate more basic financial concepts in math courses. Math courses should include compounding, discounting, rate of return, and other financial concepts that are taught in an applied way so that students understand how it’s used in the real world. Civics classes should include financial ethics: on borrowing, for example, and on the importance of making on-time payments on borrowed funds.

By combining education both at home and in the classroom, we can ensure a more financially literate youth that is prepared for the financial challenges that lie ahead.