Teaching children financial literacy is important, yet it is not the complete solution. Children need to learn money management skills that give them competency.
What’s the difference between literacy and competency?
Literacy is knowledge. Therefore, knowing about financial matters will not help children manage money. Simply knowing about saving, borrowing, insurance, compound interest, investing, is not enough.
Competency is skill. Competency requires practice and learning from mistakes. Consequently, learning to money management skills requires hands-on practice using real currency.
This hands-on practice does not happen in the classroom, because schools can’t provide real money. Schools can offer simulations, exercises, games and discussions, but not real currency.
As a result, parents are the only ones who can provide the one tool required for learning financial skill, namely money. Parents can help their children gain money management skills by giving them hands-on practice at home with their own money.
Reinforce financial knowledge at home
Financial knowledge can be learned at school. Then it can be reviewed at home. Family discussions about financial topics helps kids become comfortable with money management.
Money topics to talk about as a family include:
- Using different types of financial tools such as cash, checks, credit, debit,
- Accessing funds from financial institutions using checks, ATM and electronic fund transfers (ETF).
- Knowing basic financial terms including credit, debit, overdraft, interest, deposit, and withdrawal.
- Financial documents: checking account, savings account, loans, credit card statements, bank statements, tax returns and other financial documents you use in your family.
Develop money management skills at home
A child can have many years of financial hands-on experience with parental guidance at home. When a child is responsible managing his or her own funds the following skills take on greater importance.
- Addition and subtraction. Managing money is all about numbers.
- Record keeping. Knowing how much is available and when money is needed requires keeping track of money flow.
- Decision making. Deciding how to use money is an exercise in making choices.
As a result, children who learn to manage their finances will be more confident and capable to manage finances as adults.
Furthermore, parents who raise financially competent kids will not need to bailout their adult children. Hence, parents can protect their own savings and retirement funds.
Managing money is a combination of knowledge and practice. One without the other is ineffective. The ability to control one’s money provides the power to make choices.
Money management skills are essential
In conclusion, when we help our children develop financial competency through hands-on practice, they will be better prepared to navigate economic challenges as adults.
Lynne Finch helps parents teach their kids about money from piggy banks to online banking. Buy The No-Cash Allowance today and follow Lynne’s common sense approach for teaching children that money is a number.