April is Financial Literacy Month. What is financial literacy and why does it matter? Someone who is financially literate understands the basic concepts about money such as budgeting, debt, saving and investing. They know how to manage money and make wise decisions with their finances. Having this knowledge will make a huge difference in a person’s life. The sooner a person can understand the role of money in their life, the less likely they will be to get into debt and the quicker they can build wealth.
Is my teen getting what they need?
More and more schools are beginning to realize the importance of financial literacy. However, there are no real standards that they must fulfill in order to call a class a financial literacy program. As a result, some programs are not very robust. I just want to make you aware because you may think that your child is getting a great class, when in fact, they might not be getting much.
Three important factors
In 2012, COHEAO (Coalition of Higher Education Assistance Organizations) published a white paper called Financial Literacy on Campus. In this paper Kris Alban discussed three factors that lead to students better retaining and using the financial lessons that they learned. From my experience I agree that these three components make the lessons more effective for the student.
The first factor is relevance. Does this apply to me? If you are teaching a young person a lesson that they don’t see the significance of any time soon, they are probably not going to pay much attention. For example, a high school student is going to pay more attention to a lesson about buying their first car or budgeting their first paycheck, than they will a lesson about how to withdraw money from their 401K at retirement.
The second factor Kris discusses is interaction. Many times we try to teach students via the lecture format and rote memorization. While that may work to a degree, they will remember the lesson so much better, if they can learn interactively.
Teaching this way, forces them to take what they have learned and apply it in their own life. I have found this to be true in my own learning. When someone just tells me how to do something, I won’t really understand it. But if they sit down with me and walk me through the steps the light bulb goes on.
Repetition is the final factor. The more exposure your teen will have to the information the better they will learn it. Many times Financial Literacy is one a semester class. Can you imagine your teen learning how to do a budget one time in ninth grade and them being able to remember that lesson once they are out on their own? The more times they can practice money skills, the better they will learn them. If you showed me how to do something once, chances are I’m not going to remember it a month later, much less years down the road. I know I’ve reminded my fourteen-year-old many times how to reconcile his bank account. They need to be able to repetitively practice in a safe environment where the stakes aren’t so high if they mess up.
Not just a one time class
I am happy that schools are beginning to realize that financial literacy is important. Every bit of exposure helps. I just want you to realize that one class is not going to be all that they need. They need to be learning in a manner that is relevant to them in an interactive and repetitive way. And the money education should continue throughout their life – I am always learning new ways of thinking about and handling money.
One approach you can take is the method we use to teach our kids. When our kids reach fifth or sixth grade, we start turning parts of the budget over to them. They get interactive practice every month- actually handling a budget, making money decisions, planning future purchases, reconciling, etc. They get repetitive practice all through their middle school/high school years, and by the time they move out on their own they have had years of practice. Think it sounds boring for a teen? It’s not. They love it because it gives them something that teens love – control. They love being able to make their own decisions (within reason of course).
There are many ways that you could successfully teach your teen money skills. So whatever plan you use make sure it incorporates the factors of relevance, interaction, and repetition. And remember, just because someone has the knowledge doesn’t mean that they will follow through with the correct behavior. Much like taking a nutrition class doesn’t mean that a person is going to make wise decisions about what they will eat. Having knowledge isn’t enough, we must talk to our kids about goal-setting and behavior and how to think long-term in order to get the results they desire.
If you want to learn more about how to teach your kids about money by turning over parts of the family budget to them, check out my book, I Am Not Your ATM: A Practical Plan for Teaching Your Teen to Manage Money.