Since the recession in 2009, financial literacy has taken the spotlight as a large number of Americans suffer from various struggles with money. The notable issues include credit card debt, student loans, and the banking industry.
Young adults are entering the real world with six figures of debt and no understanding how to manage it. As a result, the topic has drawn criticism to the lack of basic financial education that many people believe should be taught at an earlier age.
According to a survey commissioned by MyBankTracker.com, more than half of Americans believe children should begin to handle their own finances before age 18.
The largest group of respondents believe ages 15 to 17 are the best ages that children should begin to develop money management skills. Not surprisingly, this is the age range in which children are typically in high school, when teenagers tend to become more independent — intellectually, financially, and everything in between.
Older respondents (age 45 and above) felt more strongly than younger respondents (age 18-44) that children should manage their own money at a younger age (under age 15).
This respondent group is more likely to be made up of parents and guardians who are witnessing their children struggle with credit card and student loan debt, both of which affect the ability to accumulate savings.
Taking the lessons from recent history, parents with young children nowadays may find it beneficial to address financial literacy at an early age — with the expectation that it would provide lifelong value in the pursuit of financial independence.
How Parents Can Teach Children About Money Management
Like many lessons in life, experience is often the best teacher. The same applies to educating children on how to manage their own money.
Kids bank accounts
More banks and other financial institutions could offer specific accounts that cater to younger customers.
With a bank account to call their own, children can take true ownership of their money, including the deposit, withdrawal, and spending of the money.
With that said, banks will require that an adult be a joint accountholder because children cannot legally open a bank account until age 18. So, parents can often handle transactions on the children’s behalf.
For kids before high school, a savings account may be enough to encourage the accumulation of savings. But, during the early high school years, a teen checking account may be more appropriate to provide more financial autonomy.
Undoubtedly, it’s important to keep a close eye on any bank account when your child has access to it. Parents should take opportunities to advise and teach children on better ways to manage their money and bank account.
There are a long list of features that could help parents with this task, but not all financial institutions offer them.
Account alerts, transaction limits, savings goals, and mobile banking applications are just examples of standard offerings that are very helpful.
Moreover, banks can introduce digital tools to simulate how adult finances work. For example, there could be a feature that allows parents to track and manage a “chores for allowance” system — prepaid card provider FamZoo offers such a feature.
A healthy relationship with credit
Debt is the dangerous financial trap that keeps many Americans from achieving financial independence. While parents can get a head start to instill the dislike for debt by voicing their hatred of it, it may be better to help children learn to handle credit responsibly.
This means adding children as authorized users to existing credit card accounts, which offers the added benefit of building a healthy credit score. Unfortunately, most credit card issuers do not offer limits on authorized users’ cards.
Another option would be secured credit cards that require collateral.
Setting an Example
Even when parents are equipped with all the tools to preach financial literacy and allow their kids to get hands-on experience, parents still need to set the example.
A parent’s interaction with money on an everyday basis can leave a lasting impression on how children would interact with their own money.
Pushing for Financial Literacy Programs in Schools
The truth is: not all parents are able to be the best role models when it comes to money management. That’s why there’s a call for U.S. educational systems to require financial literacy courses before teenagers enter their adult years. Even if parents are not teaching their children about money, the kids have the chance to learn basic financial knowledge and principles.