Legislating Financial Literacy? Either Way It Starts at Home.

“Florida Lawmakers Unanimously Approve Personal Finance Education Bill”

Many see this development as a major win for society, and a timely one, too.  After all, April is National Financial Literacy Month, an annual commemoration of the area of expertise in which American kids continually test poorly. It is also International Credit Union Youth Month.

Last year, the Organization for Economic Cooperation and Development released a study in which 29,000 15-year-olds were surveyed. The teens dotted the globe, but more than a thousand of them were Americans. Let’s just say the Americans didn’t win. Ranking somewhere between 8th and 12th depending on which score you care to believe, the finding was clear: American teens are not financial wizards. Yet.

Some see financial literacy mandates as the answer. But the legislation also brings up another question: what are other states to do? Moreover, is making money skills mandatory enough? Our answer: few things can trump what is demonstrated at home.

To open their minds, open your books.

For generations, there were two topics deemed too taboo to discuss among family. Chief among them, money. The size of the family’s nest egg, monthly paychecks, or savings accounts? Not to be discussed, end of conversation. Even now, among a generation waking up to the power of vulnerability, the idea of pulling back the curtain on how we spend our money feels like the ultimate disclosure.

But in honor of financial literacy month, we have a proposal: open the books. If there’s one thing that helps our kids understand the reason that all their wishes can’t be made true with the waving of a wand, it’s an understanding of where all of that money goes in the first place. Ready? Here’s how to spill the beans…effectively.

Context is Key

When your ten-year-old with a total net worth of $42.73 sees how much you and your spouse make, confusion can follow: “What?! I didn’t know we were gagillionaires! Why couldn’t I get that iPad?” However flattering it may be to have your child assert that your paycheck-to-paycheck income should land you a spot on the Forbes list, their lack of context for expenses can give them unrealistic expectation of your family's lifestyle. Our advice? Start with the budget before talking income.

Framing Your Cost of Living

Make a master list of the expenses your family incurs in a given month. Rent, utilities, grocery store runs, gas, health insurance, eating out, and even those little league dues. If it comes out of your paycheck, write it down. For added critical thinking, create a game out of the exercise: have your child guess the amounts of each budget category before revealing their true numbers. The gap between assumption and reality can be eye opening, not to mention entertaining. Then talk through each line item.

• The family car costs this much to fuel, this much to insurance, and this much to maintain...
• Our house? There are bills to pay to keep the power on, the water running, and the trash collected…
• Public school may be free, but your activity fees cost this much and lunches cost this much…

Making the Big Reveal

When the grand total has been revealed, it’s time to share the long-awaited number: income. Show a copy of your monthly paycheck and explain any deductions for taxes and retirement. Then discuss how much your family saves and gives to charitable causes each month. So what’s left over? Two lessons should come out of this vulnerable exercise: first, that every dollar is accounted for in some manner. A decision to spend over here comes from somewhere else. Perhaps savings, or perhaps a different spending category. And the second lesson should be that the family will be fine if we all work together to spend carefully.

Making Space to Clear the Air

There are certainly a number of risks to opening the checkbook up to kids. They could tell their friends how much you make, for instance. But another is that it could cause unwanted concern. There’s a significant difference between showing that the family doesn't’ have endless means for everyone’s whims,  and spreading worry. As such, it’s vital that you assure your kids that the family is provided for, protected, and safe. Then, open the conversation to questions. Make space to clarify any worries or concerns.

When handled carefully, talking to your kids about the family’s budget will instill a sense of ownership and stewardship of the family’s resources. The next time they ask for a video game, they’ll understand why the answer is probably, “not right now.”

Legislation or not, what you demonstrate at home will shape the way your children view and treat money.

(Partially reprinted from Biz Kids – www.bkmoneytalk.com)