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When I was in high school (which I feel like wasn’t even that long ago...), the extent of our financial literacy education was learning how to “balance a checkbook.” We used sample paper budgets to calculate monthly income and expenses, jotting them down on photocopied balance sheets.

As an adult, I have never once balanced a checkbook. Based on my experience, I’ve been cautious when incorporating financial literacy into our curriculum at Prisma. How do we make sure that we are teaching kids useful financial concepts for long-term success, rather than skills that seem valuable in the short-term but aren’t relevant to their lives later on?

This challenge has only gotten more pronounced as time goes on. Financial transactions have shifted online, and new forms of currency like cryptocurrencies have emerged. The expansion of financial products and services, from basic accounts to ETFs, mutual funds, and robo-advisors, bring more opportunities but also more complexities. The rise of the gig economy and remote work have altered income structures, requiring different financial considerations for young people just beginning their financial lives. And as the cost of living continues to increase, effective management, saving, and investing become crucial. These rapid changes and evolving complexities in the financial landscape highlight the growing importance of financial literacy.

The Importance of Financial Literacy

Understanding investing and the financial world is an empowering life skill that often isn't taught in schools. At our virtual school, Prisma, we developed a complete Life Skills curriculum, and emphasize real-world learning, a key component of which is financial literacy. Our learners practice fundraising for real causes, build their own businesses, and even complete fun economics simulations like our popular “Shark Tank” workshop.

While it might be tempting to assume that financial concepts are too complex for young minds, children are capable of understanding basic financial concepts at an early age as long as the information is made relatable to them.

One valuable gift you can give your child is the knowledge of investing at a young age. Teaching kids about investing isn't merely about turning them into future investors. It's about imparting the wisdom to differentiate between needs and wants, understand the value of saving, and to realize the consequences of financial decisions.

How to start? Our Life Skills curriculum designer and learning coach, James McManus, says "Getting your kid into investing is simple: start early and make it a habit! The right time to start is whenever they start to ask you about money, and 11 or 12 years old if they haven't started asking."

By introducing these concepts at home, you're setting your child up to be more financially responsible and savvy, giving them the tools to navigate an increasingly complex financial world. It's also a pathway to independence, offering them the knowledge to control their financial future.

Making Financial Literacy Engaging and Age-Appropriate

Parents often have the best teaching tools right at their fingertips—their family budget and spending habits. Use everyday situations as teaching moments. For example, during your routine grocery shopping, explain why you're choosing one product over another. Maybe it's cheaper, or it's on sale—either way, you're making a conscious financial decision.

"It's difficult for many kids to truly comprehend the value of money, in large part because so much of our economy and our daily transactions are done via the internet or using plastic,” says James. “Get your kids handling cash, and put money in terms of concrete objects/concepts they understand. For example, the first time your kid starts a lemonade stand, sit down and determine how much money they made per hour. Next time they ask to purchase something (let's say a $100 inflatable lawn decoration), ask them to calculate how many hours of time that thing is worth."

When it comes to implementing financial education at different ages, also consider these ideas:

For Younger Children:

1. The Piggy Bank: The piggy bank is more than a cute toy. It's a visual tool for teaching the value of money and savings. Encourage your child to save coins and small notes, and watch their excitement as their savings grow over time.
2. Needs vs Wants: Use your family budget to help your children understand the difference between needs and wants. Explain why you budget for certain items and why some are saved for later or avoided altogether. This is another great topic for those grocery store visits!
3. Pretend Play: Kids love to play “store,” or imitate whatever the grown-ups around them do for work. When playing with your child, bring in financial concepts in an age-appropriate way. For example, tell them how much a product they are selling cost to make, and have them give the customer a price that is higher, to help explain the concept of profit.
4. Interactive Apps and Games: Utilize educational apps designed for teaching financial literacy to children. Games like the classic Lemonade Stand game, Star Banks Adventure and Renegade Buggies can make learning about money fun and engaging.

Middle School Aged Kids:

1. Build a Business: Kids all over the world start real businesses every day! Even if your child doesn’t want to be the next kid entrepreneur, the summer lemonade stand or allowance for doing chores is a classic for a reason. In our “Build a Business” theme at Prisma, learners in grades 4-8 worked individually or in pairs to design their own business models to sell a product or service, using their talents. Generating a complete business plan can be a great way to teach kids about market demands (How do they know their idea is something people want to buy? Can they conduct user research or a competitive analysis?)
2. Bank Account: Opening a checking or savings account in their name gives them a sense of responsibility over real money. This is also an excellent time to introduce the concept of interest.
3. Family Budgeting: Involve them in basic family budgeting. Discuss your financial decisions with them, explain why you're saving for retirement, why you pay insurance, or why you've decided to cut back on certain expenses. If your child has something like a vacation or new gadget they’re excited about, involve them in the financial planning and decision making that could make it possible.
4. Learning Resources: Websites like Biz Kid$ offer excellent resources and engaging content designed to teach kids about the fundamentals of money and business. Check out Common Sense Media reviews for even more websites, games, and apps.

High School Aged Kids:

1. Stock Market Games: Online stock market games like The Stock Market Game or HowTheMarketWorks provide a risk-free environment where they can apply what they've learned about investing. Games are an easy way to help kids understand concepts like interest rates, which are important for making sense of the world of money but are hard to expose them to in a real-life way.
2. Part-Time Job: Encouraging a part-time job can be a great way to learn about earning money, taxes, and budgeting. Many high schoolers begin to use a debit card or credit card with parental supervision, especially if they’re earning wages.
3. Family Investments: Discuss your investments with them. If you're comfortable, show them your investment portfolio. Discuss why you've chosen certain stocks or funds, how they've performed, and what your financial goals are.
4. Personal Finance Books: Consider books such as "The Teen Money Manual" by Kara McGuire or "The Motley Fool Investment Guide for Teens" by David and Tom Gardner. These offer age-appropriate advice on money management and investing.

Teaching Investing: An Interactive Experience

Explaining Investing to Kids

The stock market can feel complicated and intimidating to a lot of adults, let alone kids! "A lot of parents and teachers struggle to simply explain the stock market to their children and students,” says James, “but I've found the best way to explain it is using pizza. Each share is a slice of a pizza, and if the whole pizza gets bigger then so does our slice. The goal is to find a pizza (company) that's going to get bigger (be successful) instead of smaller."

Understanding compound interest can be a powerful tool for financial success. It's the principle that you earn interest not just on your original investment, but also on the interest you've already earned. This leads to exponential growth over time and can turn even small investments into substantial sums with patience and time. To explain this to kids, use the example of planting a seed. The seed (the initial investment) grows into a tree (the compound interest), which produces more seeds (interest on the interest), leading to a whole forest over time. The same principle can be applied to non-financial aspects of life, like knowledge or skills. For instance, each new thing you learn (interest) builds on what you already know (principal), which can lead to an exponential increase in knowledge or skills over time. This is essentially the "compound interest" of self-improvement and learning.

When introducing investing, consider doing so in a practical and engaging way with interactive activities:

1. Direct Investment: Consider buying a share of a company they like, such as Disney or Apple. This makes investing relatable and allows them to learn by doing. They can monitor the stock price, learn about dividends, and understand market volatility firsthand.
2. Cryptocurrency: Given the growing relevance of cryptocurrency, introduce them to platforms like Coinbase that offer a fun and educational way to learn about various cryptocurrencies.
3. Investment Account: Mutual funds, ETFs (Exchange-Traded Funds), and index funds are excellent instruments for teaching investment strategy and the importance of a diversified portfolio. When they're comfortable with these basics, consider introducing a brokerage account. An UGMA (Uniform Gifts to Minors Act) custodial brokerage account is an excellent tool to give them a taste of real-world investing.

Conclusion

Financial literacy is more than just understanding money; it's about making informed decisions that will guide your child's financial future. By teaching investing to your child, you are not only preparing them for future financial challenges but also helping them develop discipline, patience, and foresight. So, start today, and turn everyday moments into valuable financial lessons.

Disclaimer: This article is for educational purposes only. It should not be considered financial or investment advice. Always consult a financial advisor or do thorough research before making any investment decisions.