Studies in Financial Literacy between Parents and Children
“Adulting” is harder for young adults who did not receive any financial education growing up from school or home. According to a recent T. Rowe Price survey of 2,000 parents, 66% said they wished they had received more financial education in school. In the same group of parents, 41% agreed it is important to talk with their kids about money, but are reluctant to have those conversations.
According to some experts, financial illiteracy is a growing concern. Surprised? Let’s look at some data.
Lack of Formal Financial Education
Money-management skills are more important than ever, yet more than half of states do not require high schools to offer personal finance classes. Only 17% of high schoolers in 2019 were required to take a financial literacy course, while almost 70% had the option to take at least one class.
More than one in six students in the United Sates do not reach the baseline level of proficiency in financial literacy. In T. Rowe Price’s survey, only 36% of kids between the ages of 8-14 felt their school did a good job of teaching about money.
Habits Are Learned at Home
It turns out the apple doesn’t fall far from the money tree, so to speak. In lieu of high school personal finance classes, most teens either learn from their own mistakes or look to their parents for personal finance lessons.
Positive money behaviors and expectations among kids are often associated with their parents' decision to let them decide how to save and spend their money, and modeling good financial habits. By allowing kids to manage their own funds, the majority will be more comfortable discussing money and are more likely to talk with their parents about money.
Kids who have had these discussions are less likely to:
- Spend their money as soon as they get it
- Have lied to their parents about what they spent their money on
- Expect their parents to buy them what they want
- Feel ashamed because they have less than other kids
Later in life, young adults who discussed money with their parents are:
- More likely to have a budget
- More likely to have an emergency fund
- More likely to put 10% or more of their income toward savings
- More likely to have a retirement account
Start the Conversation
Although parents carry influence on how their kids handle money, many are still reluctant to discuss financial matters. Almost half of parents said they are hesitant to talk about financial topics with their kids, most often because parents don’t want their kids to worry about finances.
For parents who aren’t sure how to start talking about money, there are some easy topics to initiate those conversations:
- Back to school shopping on a budget
- Figuring out how much was saved by purchasing sale items
- Going into a physical bank
- Discussing the cost of college
- Discussing why they didn't take a bigger vacation
Parents who discuss financial topics with their kids at least once a week are significantly more likely to have kids who say they are smart about money.
Financial education has to start at home. Studies show children make their first assisted purchases at three years old. By the time children are six years old, some are receiving their first allowances. Having important conversations around finances with children when they are young will help set them on a path to make more informed decisions about their money as they get older.
One way to start those conversations is to take your child to open a savings account. United Federal Credit Union offers a Youth’s Savings Account to help Members under 21 start saving for their future.
Whether you have your finances in order or are still working on it, kids are always watching and drawing their own conclusions from what they learn from you. Even parents who harbor an extra cautious or fearful approach toward money may also pass down unhealthy money habits, according to experts. But spending some time understanding your financial psychology can be incredibly valuable in helping improve your financial health and can help you teach your children those same skills.