About 69% of American parents say they're less ready to tell their children the facts of investing than the facts of life. This disturbing 2008 finding by the Charles Schwab Parents and Money survey also found that only one-third of parents taught their children how to balance a checkbook. Even fewer explained the smart use of credit.
Parents don't teach their kids about money, but that doesn't mean they shouldn't. Financial literacy, and the wealth it brings, has been linked with longer lifespans and improved happiness during that life.
Money may be an uncomfortable topic in American culture, but the benefits of training children financially are worth the discomfort.
1. They'll be targeted immediately after high school.
A survey conducted by the University of Houston Law School found 68 percent of college students under 21 had received offers for credit cards within the last year, most often as the result of marketing partnerships between a bank and the college. Of those students who applied, 27 percent listed their student loans as income to qualify for the card. This study was conducted after the Credit Card Accountability, Responsibility and Disclosure Act of 2009 went into effect, part of which aimed to reduce banks' targeting of young adults with offers of high-interest credit.
2. They're ready earlier than you think.
Piaget's model of cognitive development states children begin understanding concepts of value and exchange in the "Pre-Operational stage," which most reach between their 2nd and 7th birthdays. Research at the University of Wisconsin determined that basic money education can begin once children reach that stage. Though most parents wait until the teenage years to begin money education, children can begin learning about financial concepts even while still learning how to count.
3. Early savings makes a huge difference.
Though stock market returns vary widely year after year, the overall annual return on investments over a period of decades is reliably between 8 percent and 10 percent. A thousand dollars saved at age 22 would be worth over $21,000 by retirement age even at the 8% rate. That same money saved at 32 would be worth just $10,000. Saved at 42, only $4,600. A survey funded by The National Foundation for Credit Counseling in found one-third of adults (including young adults) saved nothing for retirement during that year.
4. Opportunities are everywhere.
Opportunities for earlier lessons abound in the life of a parent. Resources published by the University of Ohio suggest using trips to the grocery store to talk about pricing, budgeting, tricks of advertising and choosing between two similar products. The Family Extension program at the University of Minnesota found that preschoolers benefit from helping return rented or borrowed items, counting out money for payment and discussing commercials viewed on TV.
5. You'll give them an advantage.
The Parents and Money survey found that only 16% of adults surveyed learned financial skills in school or at after-school programs. Just 27% learned from their parents' example, leaving most to receive guided experience elsewhere or simply learn from their own mistakes. The results of this were evident in findings by the Center for Economic and Entrepreneurial Literacy which found more than half of college students surveyed overdrew their bank accounts, and 81 percent underestimated how long it would take to pay off a credit card balance. Youth entering adult life with better financial literacy will have a competitive advantage over those with the more common experience.
6. The financial world is getting more complex
Global markets are now part of even basic investment packages. Pensions are moving from traditional models to those where the individual has more control and responsibility. Banks offer an intentionally confusing array of credit options to improve their bottom line. With financial literacy more important than ever before, 21 countries have added financial literacy to their public school curricula, according to the Organization of Economic Co-operation and Development. This list includes the United States, but financial literacy is not a part of any teaching qualification in U.S. schools, and as of 2013 not a federally mandated curriculum requirement.
Life is hard enough for 20-somethings, whether they realize it or not. Student loans, a soft job market and longer work lives can combine to make it even harder. By providing a strong grounding in basic financial literacy, parents can do a lot to ease some of that hardship.