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.