American students score in the bottom half on every international test of financial literacy. This is not a promising signal about the future financial health of the United States. Although many high schools now offer personal finance courses, they are required in only four states. Most students report that they expect to learn about personal finance from their parents, but money remains a taboo subject in too many families. April is Financial Literacy month, so it is a great time to start talking to your children about the most important personal finance topics.
1. How to Write a Check and Balance a Checkbook
College professors report that every year they encounter students who do not know how to write a check or balance a checkbook. How are these young adults supposed to pay bills or manage their money without this very basic skill? This is a skill you can start teaching children at a young age. Let them watch when you write a check. Let them open a real savings account or create a virtual, home checking account for them complete with their own checks.
2. How to Make a Budget
Only about half of teenagers report that they know how to make a budget. Sending your child out into the adult world without that skill is kind of like letting them leave the house without being able to tie their shoes. Talk to your kids about average salaries for different jobs and how much rent, utilities, insurance, food, and other expenses actually cost. Then, help them make their first budget.
3. How to Guard Your Credit
Young adults leave home and suddenly have a wide array of credit options available to them. Make sure they know how to protect their credit and understand the long-term impact of poor choices. The consequences are so much greater than just late fees and high interest rates today. Bad credit can mean not getting a loan, an apartment, or even a job.
4. Why So Much Money is Deducted From Your Paycheck
Do you remember your first paycheck and how surprised you were to see how little of that money you actually brought home? Your kids are going to be just as surprised as you were. As you are talking about budgeting, note where money is being deducted for taxes, social security, and medicare. When these become more than just news headlines and actual dollars out of their pocket, kids suddenly pay a lot more attention.
5. How to Invest For Retirement
While millennials are not depending on social security when they retire, they also don’t make the best decisions about their retirement savings. Show your kids how early investment lets compounding interest do a lot of the work for them. Teach them about the risk-return tradeoff and that risk is more tolerable while they are young and have a long investment horizon. Now is the time to consider alternative investing and alternative investment strategies.