HomeHealth & BehaviorEmotional Well-Being

Smart money: 7 ways to raise a financially literate child

With schools focused on core subjects, there isn't a lot of room for teaching financial literacy. If you want your child to be smart about money, it's up to you.

By Marian Wilde

The need for children to receive a basic education in money matters is all too apparent now that the nation is facing what some experts are calling the most serious economic meltdown since the Great Depression. Not only do students need to understand how the economy works, but - because our current situation came about in large part when many adults did not fully understand how their home loans would work over time and if they could afford them - young people today need to learn the basics of personal finance.

American citizens are exhibiting other signs of financial disarray, as well. According to the National Association of State Boards of Education (NASBE) Commission on Financial and Investor Literary, "American consumers now owe about $1.7 trillion in credit card and other debt, an amount roughly equal to the gross national products of Great Britain and Russia combined."

As credit card debt increases, savings rates fall. In 2005, the personal savings rate crossed into negative territory for the first time since the Great Depression. Western Europe, on the other hand, has a savings rate of 14 percent.

Fortunately, the drive to teach financial literacy in schools is gathering steam. Highlights of a survey of states, published in 2007 by the National Council on Economic Education (NCEE), showed that:

  • Economics is now included in the educational standards of all states (up from only 38 states in 1998)
  • Seventeen states require students to take an economics course as a high school graduation requirement (up from 13 states in 1998)
  • Personal finance is now part of the educational standards in 40 states (up from 21 states in 1998)
  • Seven states require students to take a personal finance course as a high school graduation requirement (up from one state in 1998)

Teaching children financial literacy has a positive impact on their later life. According to a 2006 report from NASBE, "Individuals graduating from high schools in states that mandate personal finance education courses have higher savings rates and net worth as a percentage of earnings than those who graduate from schools in states without such a mandate."

However, the vast majority of schools today emphasize reading, writing, math and science in preparation for standardized tests, and that means there isn't a lot of time left over for other subjects. If parents truly want their child to become financially literate, it's up to them.

Eileen and Jon Gallo, authors of The Financially Intelligent Parent: 8 Steps to Raising Successful, Generous, Responsible Children, identify eight steps that parents can take to provide a basic foundation in money skills for their children.

Comments from readers

"Hi, I really enjoyed your article. I do disagree with you on allowance tied to chores. I agree that children need to learn to contribute freely to the house for the privlege of being part of our family. To me these contributions are: Cleaning their rooms Cleaning up after themselves in the kitchen, bathroom etc Following the rules: ie no eating in the bedrooms Putting their games/toys away in a neat and orderly fashion Being respectful of one another But I do feel there are chores above and beyond the ordinary contributions that merit allowance. Examples would be: Doing the house hold laundry Picking up the dog waste Emptying the dishwasher and setting the table I view these chores as items they do for every one, not just themselves. So we assign each child a chore and they get payment IF they do the chores. I strongly feel that work should be tied into pay. This has been very successful for me as I have witheld pay for chores not done. I have even witheld pay even if they did they did the chores but I had to prompt them first. What I feel I am demonstrating is the real world. I pay if they work. I don't pay if they don't work. One son called me on it the other day. I was late on my Sunday scheduled payment and he said, 'you know mom, I didn't pick up the dog poop this week'. I said, 'why?' He said, 'you didn't pay me last week and when you pay me I'll work'. Works both ways....I PAID HIM! "
"I really liked the topic of this article. It had some really terrific ideas for parents and 'food for thought'. Thanks"
"I found the article interesting. Another good thing that we do is listen to Dave Ramsey on the radio. He is on 640am from 3-6pm during the week and we listen to him on our way home from school. He also has a web site under his name. Clark Howard is also a good source of information and has written books about kids and finance. I just want them to be aware of how detrimental spending more than you make can be and how it can ruin your life. Too many scary stories about kids opening credit card accounts in college and maxing out on them without being able to pay the credit card company, which have caused some kids to stress out so much, they commit suicide. "
"I totally agree with the points offered to parents in this article. I lived my childhood life being raised by an entrepreneural mom, who taught us early that being poor just means working harder to break the cycle of poverty. My mother worked many kinds of jobs to help sustain her family. And while young yet, she started her own business which she then taught us to embrace. What followed was not only some prosperity to be able to afford some material things that our neighbors could not afford, but most importantly, was the lesson about valuing money and being giving and honest. At 51 y.o., I would consider myself pretty average and was on my way to financial success and independence, until almost 2 years ago. One of the most traumatic thing happened to me when my wife and mother of the three youngest of my children filed for divorce (I am yet to see the cause), lied in order to have me arrested in front of my children and had me put out of my house and branded an abusive husband! i am today still in shock, that I am unable to stay focus and get up each day with the same enthusiasm I had prior. I always tried to give my family and especially the children structure and good values, instead of just taking them out shopping every payday, as my ex-wife would often do, after ignoring them (and me) the rest of the time. She would use buying them expensive clothes and games to make up for her refusal to engage herself in their studies, extra-curricular activiities or even showing them how to pick up after themselves. I'll skip all of the middle to make a simple point. Even though I am now on the brink of filing bankkruptcy, I had started a small business, right here in Brooklyn, with an eye on a early retirement to spend more quality time with the family. My kids enjoy being in the store, watching and learning and even at times eagerly participated in providing customers with assistance. My 13 y.o can almost operate this business on her own due to her early participation and willingness to learn about the value of money. She's caused me to lose my cell phone service of over 12 years, though! The point is that my ex-wife had the idiocity to complaint to the court that my kids are at my business during parts of their visits with me. The court sided with her and the judge went so far as to admonish and warned me against taking my kids around my business (source of sustenance!) while they're visiting with me! In other words, a court can now oder a parent not to engage his/her child in the art of learning how to manage money or becoming interested in the mechanics of learning something about business from an early age! This is lunacy. I am still in a daze. Thank youa again. "
"I was enjoying this article very much, and thinking I would send it along to others until I got to Step 5. The intent is a bit unclear, by saying “introducing them to plastic�. I am all for educating my children on what a credit card is and why they should never need one. People reading this article may conclude from Step 5 that credit cards, though not the greatest things, are necessary. That is simply untrue, and a truly financially educated child will understand why. I am also confused on how Jon and Eileen teach a child a proper work ethic, which they place as #1, when they don’t pay their children for work accomplished. To have a child understand how money works we’re just going to give them some of it because they’re breathing?!?! That doesn’t happen in the real world. A person must do work to earn money. There can be plenty that is expected chore wise from a child that isn’t tied to money, but other chores should reflect the amount they earn each week. Giving a child money, just because that’s how much you’ve been spending frivolously on them, teaches them they deserve money because they are your child. This will lead to an adult who doesn’t comprehend why things just aren’t given to them. I would encourage Great Schools to look into more sound financial counsel, such as best selling author, Dave Ramsey. Thank you, Vanessa"
"Very good suggestions. I'll make sure I share them with my daughters. Thank you."
"Fantastic! This article is as educational for kids as for parents! I emailed it to my kids (adults) hoping that they would learn something useful and convey that knowledge to their kids! Thank you!"