Since 2004, April has been officially recognized as Financial Literacy Month. What is financial literacy? It means being able to establish and maintain healthy finances and understand the basic rules of personal finance. Essentially, financial literacy is the study of money – how to make it, save it and invest. On a deeper level, financial literacy also covers knowing how to make informed decisions about your money and resources.
Unfortunately, many adults lack financial literacy. Parents and teachers can help reverse that trend by helping children better understand finances earlier in life. If children and teens begin taking more responsibility for their money when they’re young, they may be better able to cope with financial independence as they get older.
Here are some ways you can foster financial literacy in young people. And who knows? You might pick up some tips too!
- Explain your bill paying process. Do you pay all your bills online or through automatic withdrawals? Great! Or maybe you prefer to pay your bills with checks. That’s great too! Whatever your preferred method, take some time to explain it to your family and make sure they understand the basics of paying bills and the different options they have. If you pay your bills through an automatic withdrawal, it is especially important to explain how you manage your funds and ensure there is always enough money in your account to cover the expense.
- Go over balancing a checkbook. While many people use online banking now, knowing how to balance a checkbook is still a crucial skill. Understanding the process of balancing a checkbook will help your child to better understand the concept of writing checks and mentally calculating that the money is already gone, even if the check hasn’t been cashed yet. The same goes for credit or debit transactions. There will inevitably be times when you spend money but it takes a few days to disappear from your account.
- Teach the basics of taxes and how to file. Filing taxes is something that everyone will have to do once they start working and it can also be a very confusing process. There are so many different forms and items that can be claimed. The experience can seem very overwhelming, but it doesn’t have to be! If you personally file your own taxes, have your child sit down with you so you can talk them through the various forms and their purposes. If you use a professional tax filing service, you can still use this as a teachable moment. While you gather all of your documents to give to the tax professional, explain what each document is for and what information they provide.
- Explore the different ways to finance college. If you have a child that will be going to college soon, you can expect to fill out a FASFA, which is a Free Application for Student Financial Aid form. Most colleges require every student to complete the form, regardless of whether they plan to request financial aid. By involving your student in this, you will provide them with a better understanding of what goes into paying for college. The milestone of going to college is also a good time to discuss credit cards, as many 18 year olds will begin receiving credit card applications in the mail. Make sure they understand interest rates and how to keep their credit card balance under control.
Financial responsibility is like almost everything else we teach our kids: when you start small and introduce concepts gradually, children may feel more comfortable handling their money. Hopefully, they will also develop a deeper understanding of what it takes to maintain healthy finances throughout their lives.
Article submitted by Jeff