Top 10 Reasons To Teach Your Kids Financial Literacy

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Do you teach your kids financial literacy? Even young kids (as early as 2) can start learning about money, taxes, banking etc. Check out this great article from the National Financial Educators Council.

What is financial literacy? 
"It is the ability to understand how money works in the world: how someone manages to earn or make it, how that person manages it, how he/she invests it (turn it into more) and how that person donates it to help others. More specifically, it refers to the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources."

In January we began teaching our kids about earning money, budgeting, banking and keeping track of their money. Here is how we do it....The kids have a list of chores which include things like picking up toys and clothes each day, mopping the floor and cleaning the bathroom once a week, doing dishes daily, folding and putting away laundry etc. For each item they complete they get 1 star, 10 stars = $1, 15 stars = $2. It is up to them whether or they earn an allowance each week. So far they have each earned at least $1 since January 1st (there were two weeks they each earned $2). They must keep track of the their allowance and other money they receive (like from the tooth fairy, as gifts, etc) on a financial record. When they spend their money they must enter the receipts and make their deductions. Gwyn has an additional responsibility. She got a pet rat for Christmas and part of the agreement was that she needed to buy her rat its bag of food, which is about $6 every two months. It is her responsibly to make sure she has enough money to feed her rat and that is where our kid friendly budgeting form comes in handy.

So why is teaching kids financial literacy so important? Here are my top 10 reasons...

1) If we don't teach our kids financial literacy individuals, families and our country will continue to have economic challenges forever.
2) Not teaching kids financial literacy will most likely lead them to making poor financial decisions, having poor financial habits and can even have adverse effects on their and their families health (financially, emotionally and physically).
3) Kids need to know what a retirement account is and even start saving for it. Chances are that social security will NOT be around when our children reach retirement age. It is NEVER to early to start saving.
4) Despite what you may think they will NOT learn about money and managing finances in school or even college, it is up to us their parents (whether you homeschool or not). You can read some alarming statistics on the Financial Educators Council website.
5) Kids need to understand the risks of borrowing money. We need to arm them with the knowledge of how credit cards and debt work so they can make the right decisions. Personally we teach our kids that credit cards are NOT needed. We no longer have any credit cards and have no intention of EVER getting one again. If we don't have the cash we don't get it!!!
6) Kids need to know how to create a proper budget. Not living on a budge can lead to over spending and living off credit. Bankrate.com shared this fabulous idea, "When it's time for back-to-school shopping, set a realistic budget and involve them in the buying process. Teach them how to shop the sales and find deals on trendy clothes at consignment shops, such as Plato's Closet. If they come in under budget, let them keep 100 percent of the difference." Learning to stretch a dollar is very important as I am sure we all know there will be hard financial times as well as good ones. "Kids will spend unlimited amounts of money as long as it is yours," Bodnar says, "but when their money is on the line, it is a whole new ballgame."
7) Kids need to understand how to balance a checkbook, make deposits, open a bank account and write checks before they leave home. Otherwise they could make some very big banking mistakes causing them end up in debt or even jail.
8) Kids need to understand who FICA is and why they are taking their hard working money. Teaching kids about taxes and other paycheck deductions is very important. They need to understand what these numbers mean, where that money is going, etc so they don't end up serious trouble...like owing the IRS money.
9) Kids need to start thinking about college and saving for it (as do parents). If possible children should try to attend college without having to rely on student loans. I personally don't want my kids to have to go to college, get a fabulous degree and then have to spend every dime they earn on paying off student loans.
10) Kids need to learn about wants vs needs and about the cost of things. Gwyn learned an important lesson on this today at the Atlanta History gift shop. She really wanted this stuffed peacock that cost $50.00. She fussed and fussed. I told her the cost and said even though it was very pretty it was very expensive and she didn't have enough allowance money. I told her she was not allowed an "I Owe You" aka credit. She decided on a book about barns but was still very upset that she couldn't get the pretty stuffed peacock. To put it into perspective once we got in the car I told her, "Pretty things are very nice to have but they are not always the most practical." We discussed how everyone has needs and wants. She still was confused so I asked her, "Would you rather the stuffed peacock, which is pretty but you cannot do or learn anything from it. Or would you rather 2 horse back riding lessons, where you can learn to ride and take care of a horse?" Then it clicked. "Mommy I would rather have horse back riding lessons."

I made these two financial literacy worksheets for my kids and am so happy to share them with you for FREE:

Click here to get a FREE kid friendly budget worksheet.

Click here to get a FREE financial record worksheet.

I am hoping to make a couple more worksheets in the future to assist my kids with learning more about managing money. Stayed tuned for a savings worksheet as well as a few others.

Here are a several FREE resources which may assist you with teaching your kids financial literacy...
-Coindexter has a FREE and premium game version...read our review here.
-Sign up at NFEC to receive a FREE kids financial literacy activity.
-My Money Town has lots of great educational downloads as well as audios to help you teach your child about financial literacy.
-The Mint has lots of great activities for parents and kids.
-The US Mint has lesson plans and more.
-Awesome economics lessons are available at Econedlink for all grade levels.
-The IRS has several resources for teachers and students.
-Sense and Dollars website has great information for kids of all ages.
-Banking on our Future has fun interactive lessons, videos and lesson plans for all ages.
-Rich Smart Kid is a fun financial literacy game.
-The Banking Kids includes lessons on savings accounts, how to use an atm, budgeting and more.
-How to Teach Your Kids About Money lots of great videos for parents from Janet Bodnar.
-JumpStart.org has this fun calculator called Reality Check.
-Money As You Grow has 20 great things kids ages 3 - 18+ need to know to live financially smart lives
-For those stubborn boys try this NFL Financial Football game to teach them all about money.
-Find lots of financial topics and the answers to them at 360 Degrees of Financial Literacy.
-The Federal Reserve has lots of various resources including lesson plans, quizzes, games and more. You can also get lots of great publications on Federal Reserve Systems Publications Catalog (you can even order some in hard copy). Also check to see if there is a Federal Reserve near you and ask about doing a field trip there. I know here in Atlanta it is FREE to visit the Federal Reserve (there is even a virtual tour of the Atlanta Reserve.
-Good article on teaching kids about taxes (there is a video too).
-Dave Ramsey has some FREE items on his kids website.
-Kablinga is an interactive website that teaches kids the value of money in a fun way.
-GA Residents may want to look into the classes that the Rosen Family Foundation offers for teens.

You may also want to speak with your bank to see if they offer any sort of special classes, booklets, etc for children.

Be sure to browse through all of our other Top 10 Posts!

What kind of things are you doing to do teach your children financial literacy?

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Linking up with: Top Ten Tuesday,  I Can Teach My Child, Homegrown Learners, Look What We Did, Educating Laytons