Financial Education for Kids

As an adult, how would you rate your financial literacy? If your confidence is less than a 10 out of 10, you’re not alone. In fact, recent NerdWallet research revealed that “three quarters of Americans say they do not feel confident about their personal finances for 2023.” This is largely due to two main factors: anxiety about the nation’s economic outlook and gaps in their understanding of key concepts.

As it turns out, most adults seem to understand that much of their financial anxiety could be eased with education. In fact, according to the National Endowment for Financial Education (NEFE), a majority (80%) of American adults “wish they were required to complete a semester- or year-long course focused on personal finance education during high school.”

Millennials, meanwhile, are “confident but stressed” about their finances, according to Investopedia—not exactly a recipe for success.

So, what’s the answer? How can we prepare the next generation to feel more confident and secure about their financial future—and empower them to live full and satisfying lives not wrecked by anxiety and debt? Simple: we must seriously consider the importance of financial education for youth in building a foundation of the essential skills they’ll need to feel less stressed, and more confident.

Keep reading for a brief guide to financial education for kids, including what it should cover, what it might look like, and how it can empower young people to be more confident and comfortable dealing with financial topics. First, though, let’s define what financial literacy is.

What Is Financial Literacy?

The National Financial Educators Council defines financial literacy as “possessing the financial knowledge, behaviors, systems, team, and plan to confidently take effective action that best fulfills an individual’s personal, family, and global community goals.” In other words, it goes well beyond simply teaching the value of money—it includes an understanding of the basic principles of finances, as well as the ability to make smart decisions for their present and future.

What Are the 5 Principles of Financial Literacy?

There are generally 5 key principles that make up a well-rounded financial education, each based on a specific “skill” related to a person’s ability to…

Earn an income and understand their earnings—including how gross and net income relate to actual take-home pay, the deductions and tax implications of their earnings, the value of workplace benefits, and so on. The more an individual understands the details of their paycheck, the better position they’ll be in to set an effective budget and manage their spending.
Save money, to prepare for emergencies, or build savings for future investments like college or a car.
Spend money wisely, by avoiding impulse purchases, differentiating between “wants” and “needs”, and so on.
Understand what it means to borrow money, including the concepts of paying it back and not borrowing more than you can reasonably pay back in the future.
Protect their money, including taking care of what they spend it on.

Just how deeply do kids need to understand the ins and outs of earning, saving, spending, borrowing, and investing, though? They certainly don’t need to be experts! There are, however, plenty of basics that kids should learn to build a solid foundation for their future. These include:

Being generally responsible with things they value.
Understanding the difference between “needs” and “wants.”
Developing the capacity for delayed gratification (as opposed to impulse buying).
Appreciating the concept of “working for” or “earning” something of value.
Setting short or long-term goals and sticking to them.

Why Is Financial Literacy Important for Youth?

Building a strong foundation for financial literacy for kids empowers them to navigate their adolescence and eventual adulthood with the skills and mindset to build wealth and make smart, informed decisions. Educating our youth about the basics of personal financial literacy helps to ensure that the next generation is more confident in their ability to budget, save, and protect what they earn.

Generally speaking, teaching kids about money is an important component of modern parenting, as it empowers young people to:

Understand and appreciate the value of money and saving.
Develop and improve their basic money-management skills and financial decision-making.
Prepare themselves to be successful and financially independent.

Currently, over 60% of Americans “live paycheck to paycheck” and “can’t set aside any money for short-term or long-term financial goals” (according to Forbes). This, obviously, puts over half of American adults in a stressful situation that can quickly become overwhelming. Even 41% of Americans earning between $150,000 and $200,000 find themselves in a tricky situation.

There’s also a clear relationship between financial literacy and economic well-being. A recent Financial Industry Regulation Authority (FINRA) study was able to quantify the impact of financial literacy, finding that:

“53% of people with higher financial literacy skills spent less than their income and 65% saved enough money for a three-month emergency fund.”
“Only 35% of people with lower financial literacy skills spent less than their income and 42% had saved enough for a three-month emergency fund.”

There’s also a very human reason to promote financial literacy. Debt, especially over time, can significantly impact an individual’s mental and physical well-being. It can cause stress and anxiety, which can start to wreck one’s self-esteem and relationships, and lead to more significant financial problems if left unchecked.

So, if we can prepare the youth to better understand money management and financial literacy, we can help to ensure a better future for them. Consider these youth financial literacy statistics from Annuity.org:

Three-fourths (75%) of teens “lack confidence in their knowledge of personal finance.”
Well over one-third (41%) of teens “don’t know what a 401(k) is,” while 32% can’t say what the difference between a credit card and debit card is.
A majority of teens (86%) are “interested in investing,” but 45% don’t invest (because they don’t really know where to start).
Finally, while over half (62%) of teens “said they had learned about saving,” less than half (44%) say they know much about “saving for college,” and even fewer (42%) are confident when it comes to budgeting.

Are They Teaching Financial Literacy in Schools?

Sometimes, yes! However, considering the importance of financial literacy, it’s surprising that teaching money management in schools doesn’t always appear in schools’ curricula. Even students themselves recognize the need for financial education. Many school districts are trying, at least. As Forbes reports, seven states do currently “have financial literacy class requirements,” and 34 “have pending legislation.” What are the roadblocks preventing so many districts from teaching financial literacy to high school students?

Some critics of financial education for kids say “teaching kids about money is the parents’ responsibility.” But this argument assumes that every school-aged child has parents who are financially savvy and not only willing but able to teach them what they need to know. This leaves many students un-taught, contributing to what CNBC calls the “financial inclusion gap.” Financial instruction should be inclusive, equitable, and relevant for students from all backgrounds.
Others claim that “teachers are ill equipped to teach the complexities of personal finance,” but this argument is a generalization at best. The fact is that plenty of professional development exists to equip teachers with the information and support they need. For example, the National Education Association provides a wide range of tools, techniques, and other resources for supplementing a curriculum with elements of financial literacy.
Another set of critics cite that state-level decisions prevent widespread adoption of financial literacy programs for students. Though some states and districts are increasingly trying to integrate financial education into the curriculum, the Nation’s Report Card on Financial Literacy determined that only 17 states received an “A” or “B” for their instruction, while 66% earned a “C” or worse. Room for improvement!
Finally, as CNBC points out, personal finance as a knowledge area “is still relatively young and evolving,” which accounts for the lack of an established, standardized curriculum but doesn’t discount the importance of establishing such standards.

So, how can parents empower their kids with an effective foundation for their financial education? Next, we’ll explore the key concepts and approaches to consider.

What Are the Different Methods of Teaching Financial Literacy to Kids?

Until “financial literacy” is a more prominent staple within school curricula, teaching the foundational concepts often does fall to the parents. But where’s the best place to start? It really depends on a child’s age. Let’s consider a few example strategies for modeling financial literacy for young people in age-appropriate ways.

Start with Saving

In early childhood, the most important concept is the relationship between saving money and spending money—like the simple fact that you can’t spend more than you have. Even a simple exercise like using a clear jar or fun piggy bank to save change can be a tangible way to teach what it means to “put something away for a rainy day.”

It’s important to make saving fun for younger children, and to get excited every time they add to their savings. You can also set a savings goal with an incentive, like “once you save $XX, we’ll visit the toy aisle!” to lay the foundation for the relationship between saving and spending.

To introduce kids to savings and help them begin to save, consider opening an IMCU minor account. In addition to being able to save, these accounts come with plenty of perks like a $5 initial deposit, no monthly fees, a free debit card they can use (and you can manage), and more.

IMCU's SmartStart tool helps children learn these essential skills. They can do things like request a loan from their parents (teaching the meaning of interest rates and payments), set a budget, earn allowance for chores completed, and more.

Model the Fundamentals

As kids reach elementary school age, you can start introducing the fundamentals of financial literacy beyond saving. Young children are impressionable and learn by seeing or doing. At this stage, it’s important to model financial literacy, teach as you go, and provide lots of opportunities for them to ask questions. Some hands-on activities for modeling the fundamentals can include things like…

Playing age-appropriate games that keep score by using play money and encourage basic planning and strategizing.
Helping them create a wish list of things they want, and then using that list to discuss “wants vs needs” and other relevant topics.
Explaining your decision-making process as you grocery shop, to model concepts like comparison shopping and sticking to a list.
Giving an allowance, even if very small, that they can earn for doing basic, assigned chores. The younger the child, the more important it is to explain why they’re getting the allowance, what they can and can’t spend it on, and so on. You can also use fun tech tools like the SmartStart app where kids can set up a budget, and earn allowances for chores they complete.

Prepare Kids for Adulthood

As children enter adolescence, they will benefit from hands-on activities that translate the basic concepts they have previously learned into real-world application. For example, you might…

Help them get their first bank accounts. As you navigate the various options, help them understand the pros and cons of different account types. Consider introducing them to checking and savings accounts, and teach them to use them effectively. Consider opening one of IMCU’s minor accounts to teach kids the real-world importance of savings.
Empower them to make their decisions—with guardrails. Whether earning an allowance or working a part-time job, try to balance allowing children to budget their money appropriately and helping them avoid making mistakes.
Foster a mindset that prioritizes savings. Encourage kids to prioritize putting aside savings when they receive their allowance or part-time job wages. The earlier they can learn the habit of prioritizing saving and then spending what’s left, the better position they will be in to manage their money effectively into their adulthood.
Teach the basics of tangential topics like taxes and withholding. While kids don’t have to be tax experts by any means, they should understand the difference between gross income and take-home pay.
Prepare them to understand and use credit (while avoiding pitfalls). In addition to IMCU’s minor accounts that let kids begin their own savings account, we also offer Jumpstart Credit Cards, which come with no annual fees, rewards for on-time payments, and other benefits designed to teach and reinforce the importance of credit building.
Address consumerism. Everywhere kids look—whether they’re watching TV, using the internet, or out in the “real world,” they are being influenced to buy stuff. The most concerning thing about this is that only 7 states require high schoolers to take any kind of financial literacy course. As kids experience these pressures to buy, use them as opportunities to teach them that not everything is a must-have and the benefits of thinking about a potential purchase before making impulse buys.

How Does IMCU Help Kids Develop Financial Literacy?

IMCU’s SmartStart program was designed to provide parents with interactive, hands-on tools and resources teaching their kids about the principles of financial literacy. Through this unique program, kids, teens, and young adults can also begin developing their own ability to earn, save, and manage their money responsibly.

Personal Finance for Kids: Additional Resources

In addition to IMCU’s SmartStart program, minor accounts, and Jumpstart Credit Cards, you can find plenty of additional resources online for teaching and reinforcing financial literacy. Below, we’ve collected a few that we think offer the most value.

Lemonade Day is a popular resource that introduces kids to entrepreneurship's basic concepts—and fun!—of entrepreneurship through interactive games. The primary curriculum is based on the classic concept of operating a profitable lemonade stand, but the organization also offers a wide range of math and finance-related games.
Financial Literacy Rocks! is a website that features a number of free games that can lay the foundation for young kids’ journey toward financial literacy. You can sort the resources by audience or topic, making it a great supplement to other teaching opportunities.
Forbes Advisor has assembled a great overview of different ways to teach good money habits to kids. It covers the basics to start at a young age, including instilling a habit of saving, teaching them to make smart spending decisions, modeling good financial awareness, and more.
The Consumer Financial Protection Bureau (CFBP)’s Money as You Grow program offers a number of resources parents can use to teach the basics of financial literacy, with activities tailored to young children, school-age children, and teens transitioning into adulthood.
The Federal Deposit Insurance Corporation (FDIC)’s Money Smart for Young People program centers around four age-based curricula appropriate for Pre-K to Grade 2, Grades 3-5, Grades 6-8, and Grades 9-12, which are available free of charge.
Finally, Investopedia is home to several resources for teaching financial literacy, including this collection of podcasts, apps, books, classes, and more.

Financial Literacy for Beginners: Get a SmartStart with IMCU

If you’re wondering how to teach your child financial responsibility, look no further than IMCU. Whether you’re looking to help your kid get their first savings account or you want to take advantage of our SmartStart program, we’ll support you every step of the way. If you have any additional questions, don’t hesitate to reach out or visit your local branch.