When a person doesn’t have a lot of knowledge or experience in anything, it’s usually a good idea to seek advice from an expert. This can apply to areas such as financial literacy for kids, but unfortunately, many of the “experts” appear to be getting a lot wrong when it comes to teaching young people about money.
Let’s look at a few facts to drive this point home a little.
- Statistically, kids who take finance-related courses don’t show improvement in their financial literacy.
Most experts are putting thousands of dollars into supporting financial literacy classes, arguing that, with parents crunched for time and lacking financial confidence themselves, schools are the most logical place for kids to learn. In many places, people are also pushing for more regulations that would make such classes a legal requirement. This said, a 2007 study by Lewis Mandell and Linda Schmidt Klein showed that getting school-based money education at the high school level doesn’t improve financial literacy scores. Although those involved in these types of curricula and propositions are probably sincerely well intentioned, in Mandell and Klein’s words, the classes simply do not have the necessary “stickiness” to motivate students toward better money management and decisions.
- Experts are focusing on teaching kids about money, but often parents are left in the dark.
In the push toward more finance classes (which remember, apparently aren’t working), experts usually use statistics that show that parents feel unqualified to teach their kids about finance as a support. The fact they want to help kids be confident and not repeat their parents’ mistakes is most definitely laudable, but in many cases, the solutions posed essentially cross parents out of the picture, ignoring that they are just as much in need of information and practice as their kids. Even when these programs are successful in getting kids to develop good money habits, the parents are often still grossly lacking in financial skills, stuck in a cycle of guilt, debt and overspending.
- Most financial education is concept based, not practice based.
Neuroscientists now know that the formation of habits involves coding the brain. When you do something over and over, the brain develops solid pathways to the information necessary to complete the task. Eventually, the brain becomes so efficient at retrieving it that it essentially says, “Ok, I’ve done this a million times, so let’s put this on automatic pilot so you can concentrate on something else.” This process means that, if parents or educators want kids to really remember and use what they learn about money, they have to be given the opportunity to develop the habit—that is, they need practice, and lots of it. The courses that are available might be failing in part because, even though they often provide plenty of concept-based resources like books, they do not have the out-of-class, real-world follow up application necessary for a particular financial behavior to become automatic.
What You Can Do
Experts from banks, schools and organizations might be missing the mark when it comes to truly helping break the cycle of financial illiteracy. If you don’t feel confident about teaching your kids, do whatever you can – read books, go to seminars, talk to people at your bank or who have finance degrees – to improve your money understanding. This is just as much for your own financial security as it is for your child’s. Then apply what you’ve learned and pass it on to your children, using your understanding of your child’s needs and personality to explain everyday money tasks. Give them plenty of opportunities to let them work hands-on, and find out ways to make the activities as fun as possible so that they have a positive emotional connection to them.