This beginning of this article also appeared on CU Insight.
Almost immediately after my daughter was born, I was gripped by a gnawing feeling that I had just signed up for a 400-level college course without taking any prerequisites. I knew my wife and I had a few key responsibilities — keeping the baby fed (I had little to offer there.), clothing her, swaddling her (This I was good at!) and keeping her sheltered. Oh, and I knew one other thing — I wanted to read to her from day one.
One of the lessons my parents gifted to me was the importance of reading from a young age. I was excited to share with her books that I’d loved like Dr. Seuss’ The Sneetches and Other Stories, new titles I’d discovered like William Steig’s Sylvester and the Magic Pebble and beautiful new books like No, David! and Knuffle Bunny.
Of course, our weeks-old kid could barely make out the pictures, let alone the words. We were engaged in what child experts call “emergent literacy.” Which means you’re pouring a foundation on which your children’s later literacy (reading and writing) is built. You’re preparing them for life and school.
Of course, our schools are generally well-suited to build upon the reading and writing literacy learning we parents begin.
Financial literacy is a different story.
Many areas of the country require no lessons on personal finance, and those that do typically start much later than they should.
Here’s a quick summary of the state of financial literacy in our schools.
Personal Finance in Schools
The Council for Economic Education (CEE) recently released the Survey of the States — a biennial report on the state of personal finance education in our nation’s schools. The most recent survey came with both good and bad news:
- 21 states now require students to take a high school personal finance course. This is a net increase of four states in two years.
- 2 fewer states are requiring personal finance testing as a graduation requirement.
- 5 states still don’t require personal finance standards in their curricula. (Including my home state of California!)
It’s no wonder that financial literacy teaching in the schools has progressed slowly — sometimes in fits and starts — over two decades. This underscores an important point:
“Teaching students the mechanics of money management in a math or social studies class, or out of a workbook, doesn’t even touch on the most important part—the behavioral aspects of handling money, like how to control impulses and set goals.”Brian Page, Right About Money
Even if we had 100% coverage of personal finance topics in schools, then we’d still be missing a critical piece of the puzzle — using money itself. Learning with the green stuff. Practice.
Back in 2005, my wife and I discovered that there was a large void between the time our daughter showed an interest in money (very early) and when it was generally thought appropriate to begin financial conversations (too late). We decided to fill the gap by creating The Money Mammals program to get kids excited about money-smart learning from a young age. We wanted to help parents like us help their children.
Parent Involvement Is Critical
Surveys have consistently shown that a majority of parents know they are responsible for teaching their kids money smarts. An overwhelming 81% of parents feel it’s their responsibility to teach their children about money. (Kid$Wealth)
We also know that teens and young adults consistently say that their parents are their primary resources when it comes to questions of financial literacy. For example, 71% of teens report learning about money management from their parents. (FleetBoston survey)
However, only 26% of parents with children 5 or older feel well-prepared to teach their kids about basic personal finance. (FleetBoston survey)
Researchers have identified two important areas parents should focus on to raise money-smart kids — financial socialization and experiential learning.
Financial Socialization & Experiential Learning
Financial socialization is made up of three areas: modeling, discussion and experiential learning. Modeling at its simplest is summarized by the adage that your kids “do what you do and not what you say.” They watch and model, or modify, their behaviors by observing you. Of course, discussion is another method of teaching your children the money-smart behaviors you want them to have.
“If parents and teachers support and model specific decision-making, it is probable that children will engage in the behaviour and potentially develop such financial habits.”Beutler, I., and Dickson, L. “Consumer economic socialization.” Handbook of Consumer Finance Research, edited by J. J. Xiao, Springer, 2008, pp. 83-102.
“In addition, being raised in a financially prudent household as a child has been linked to engaging in fewer negative financial behaviors as an adult.”Drever, Anita I., Elizabeth Odders-White, Charles W. Kalish, Nicole M. Else-Quest, Emily M. Hoagland, and Emory N. Nelms. “Foundations of Financial Well-Being: Insights into the Role of Executive Function, Financial Socialization, and Experienced-Based Learning in Childhood and Youth.” The Journal of Consumer Affairs 49.1 (2015): 13-38.
It’s crucial that modeling and discussion are in sync to avoid confusing, mixed messages.
Experiential learning — or practice with actual money — is arguably more important than modeling or discussion. How else do we learn but through practice? If kids don’t get to practice with real money, then financial concepts as simple as saving or charitable giving remain abstract.
Researcher and Art of Allowance Podcast guest Ashley LeBaron explains further:
“Parents can give their kids practice with money in a variety of ways. They might give them a regular allowance, pay them for tasks that go above and beyond their normal chores…or encourage them to save for special purchases or charitable donations. The specifics don’t really matter, nor does the amount of money, which may vary based on a family’s financial situation.”“Practice Makes Perfect: Experiential Learning as a Method for Financial Socialization”
In my book The Art of Allowance: A Short, Practical Guide to Raising Money-Smart, Money-Empowered Kids, my blog and my podcast, I describe experiences with my kids and talk with parents about their own experiences with their children. All of these encounters underscore the importance of experiential learning and how interaction leads to more discussion (money-smart conversations).
Make Mistakes When They’re Low-Stakes
Parents may discover that their money failings have huge pedagogical benefits — reference points to use when discussing money with their children. Parental vulnerability may be uncomfortable. I know it has been for me. But it helps lessen the gravity for kids when they inevitably make their own mistakes. Parents can take comfort knowing that their children are gaining valuable financial insight in a low-stakes environment with minimal consequences.
Again, Ashley LeBaron offers a valuable perspective:
“It’s important for parents to give kids age-appropriate financial experiences when they’re monitoring them. Let them make mistakes so you can help them learn from them, and help them develop habits before they’re on their own, when the consequences are a lot bigger and they’re dealing with larger amounts of money.”“Practice Makes Perfect: Experiential Learning as a Method for Financial Socialization”
To be sure, mistakes don’t guarantee future positive outcomes, but our own experiences are instructive. We all learn by example. And we’ve all survived.
So how do we communicate these important messages to parents?
Credit Unions Can Be a Key to Success
Credit unions are uniquely positioned to improve youth financial literacy by tapping into experiential learning in a way that schools cannot.
Credit unions are member-owned cooperatives that operate by a set of key principles, one of which is to provide financial literacy learning to their members. For example, credit unions can offer youth programs that encourage saving and generate overall excitement about the concept of money smarts, moving from preschoolers and school-age children on to tweens and teens.
Credit unions use marketing to spread the ideas that parents can and should begin teaching their kids early and that they — the parents — can be effective guides for their children whatever their money situations.
The Good Kind of Marketing
Improving youth financial literacy happens to be one of those wonderful, serendipitous opportunities to which marketing can help solve an important societal problem. When credit unions appeal to families — kids and parents — with a money-smart message, they engage in marketing in its best sense. Seth Godin, a marketer and thinker, explains it best in his new book, This Is Marketing:
“Marketing is the generous act of helping someone solve a problem. Their problem…Marketing works for society when the marketer and consumer are both aware of what’s happening and are both satisfied with the ultimate outcome.”
Lastly — and most importantly — credit unions should try to connect with moms because moms are the key family decision-makers.
Marketing to Moms — Smart for Business, Good for Their Families
Research tells us that moms make 85% of consumer purchases (FleetBoston survey) and 89% of banking decisions in a family — including where the family should bank. Dads matter too, of course, but if institutions want to help families raise money-smart kids, then they must connect with moms.
And though I’ve never met a mom or dad who, when asked, doesn’t want to raise a money-smart child, parents fall into three basic groups. Those who…
- Move confidently and effectively to teach their kids money smarts.
- Implement a program like an allowance, but could use some help.
- Don’t implement a program.
For moms in group one, they’ll need a place to go when it comes time to open up that first account for their kids. For folks in the latter two groups, a truly engaging program will draw them in — alerting them to the importance of youth money smarts and starting early. An awareness campaign can be the all-important catalyst to push a mom to begin a money-smart education program for her kids.
Institutions can position themselves as community leaders for family financial literacy by learning to capture all three of the groups identified above. In addition to an engaging educational program, they should consider offering a higher rate (e.g., 5% on the first $500 in a youth account) to attract comparison-shopping, savvy moms.
The institutional program will need to grow with each family and offer flexibility since no two families are alike. The program should help shepherd kids from their school-age years through their becoming tweens and teens. Institutions will need to make sure all media options are covered — video, apps, podcasts, blogs — to accommodate different learning styles. These materials should also be made shareable. Word-of-mouth communication matters, as 6 in 10 consumer decisions are made with the help of family and friends.
Local institutions like credit unions have a tremendous opportunity not only to bring in new members but also to help parents raise a generation of money-smart kids. In a hyperpartisan world, it’s refreshing to find a topic upon which we can all agree.
Institutions can help moms (and their families) understand a lesson similar to the one I learned from my parents when it came to reading — starting early matters, and doing so can provide a foundation for later literacy — financial literacy.
Creator & Chief Mammal