We’ve known for some time that many Americans struggle with understanding finances. Unfortunately, it’s a problem that appears to be worsening in our country. I was startled to learn that only 34% of Americans can answer at least four of five basic financial literacy questions on topics such as mortgages, interest rates, inflation and risk according to FINRA.
Despite some noble efforts at the federal, state and local levels, a portion of the population remains financially illiterate – meaning they lack the ability to understand and effectively use various financial skills, including personal financial management, budgeting and investing. Without these skills, Americans struggle with everyday tasks, like paying bills on time, as well as larger goals, like planning for retirement or buying a home.
We’re going to have to come together as a country to address this challenge. However, as individuals and parents, an easy place to start is with our own children. Here are three thoughts on how you can help the next generation bridge the financial literacy gap:
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Step 1: Talk to Your Kids About Money
Education starts at home, and it’s never too early to have conversations about money with your children.
Only 28% of parents are currently talking to their kids about money, according to a study by the Boeing Employees Credit Union. This is often based on fear, embarrassment or the belief that money is a taboo conversation topic, which we must overcome as a society.
Your children will benefit from learning about the financial decisions that benefitted you as well as missteps you may have made along the way. Helping them understand your spending habits, how you manage the family budget and think about debt will make them feel more comfortable asking questions. It also helps them begin to build a road map for when the time comes to manage their own finances.
Step 2: Create an At-Home Project
A great way to enhance financial literacy is through hands-on experience. Setting up a learning project at home is a great way to get your children thinking about financial responsibility.
One way to do this is by challenging them to set a monthly budget for their spending money and helping them open a savings account where they can put a small portion of their money away. This can provide a fundamental view on smart money practices. The more your children learn to save, the better they will understand how rewarding it can be to watch their money grow. And putting their savings to use for a big-ticket item they never thought they could afford on their own can serve as a tangible reward for them to work toward.
Financial literacy has been a passion of mine for a long time, and I have tried to teach these concepts to my own children. Starting small with general saving and budgeting habits can lead to financial responsibility, stability, mobility and financial well-being.
Step 3: Prioritize Formal Education
The good news is that formal financial literacy education has already started to gain traction, albeit to a limited degree. The Council for Economic Education found that the number of states that require high school students to take a personal finance course increased by 24% from 2018 to 2020. Additionally, just in October, Ohio became the largest to require a financial literacy test for high schoolers.
The federal government is also getting involved. The Program to Inspire Growth and Guarantee Youth Budgeting Advice and Necessary Knowledge (PIGGY BANK) Act, is a bipartisan bill introduced in the Senate recently that would create a savings pilot program for high school students to promote financial literacy through practical and experimental learning. This program would boost overall financial literacy and create an opportunity for students to learn how to build stability for long-term financial success.
These programs are critical because there is a direct correlation between them and a strong understanding of the financial skills young Americans need to make good decisions about their money. For instance, young adults who had state-mandated personal finance courses in high school are less likely to make critical financial errors, such as borrowing from payday loan companies, which charge high interest rates, than those who weren’t required to take such courses, according to FINRA.
You can start now by talking to your kids about money and creating an at-home project. Consider enrolling your child in a local financial literacy program or encourage your child’s school to implement one. And don’t forget to connect with your representatives in Washington, D.C., to let them know you support pending legislation like the PIGGY BANK Act. We owe it to our kids and future generations to step up and drive greater financial literacy so they can achieve financial security and live richer lives.
Disclaimer
AAN-0478AO
-
Should You Do A Roth IRA Conversion? Nine Things to ConsiderThe Tax Letter Thinking of converting a traditional IRA to a Roth IRA? The Kiplinger Tax Letter Editor highlights nine factors you should consider before making a move.
-
33 Stocks That Could Rally 50% or More This YearAnalysts say these S&P 500 stocks have at least 50% price upside over the next year or so.
-
Going to College? How to Navigate the Financial PlanningCollege decisions this year seem even more complex than usual, including determining whether a school is a 'financial fit.' Here's how to find your way.
-
Financial Steps After a Loved One's Alzheimer's DiagnosisIt's important to move fast on legal safeguards, estate planning and more while your loved one still has the capacity to make decisions.
-
How Soon Can You Walk Away After Selling Your Business?You may earn more money from the sale of your business if you stay to help with the transition to new management. The question is, do you need to?
-
Two Don'ts and Four Dos During Trump's Trade WarThe financial rules have changed now that tariffs have disrupted the markets and created economic uncertainty. What can you do? (And what shouldn't you do?)
-
I'm Single, With No Kids: Why Do I Need an Estate Plan?Unless you have a plan in place, guess who might be making all the decisions about your prized possessions, or even your health care: a court.
-
Most Investors Aren't as Diversified as They Think: Are You?You could be facing a surprisingly dangerous amount of concentration risk without realizing it. Fixing that problem starts with knowing exactly what you own.
-
Will My Children Inherit Too Much?If you worry about how your children will handle an inheritance, you're not alone. Luckily, you have options — from lifetime gifting to trusts — that can help.
-
Charitable Giving Lessons From Netflix's 'Apple Cider Vinegar'Charity fraud is rife, and a Netflix series provides a timely warning about donating money to a good cause without looking into its background.
