Financial literacy is an important but often overlooked life skill. If you want proof, you need look no further than the current household debt in Canada, which is at a record high — standing at a ratio of $1.64 of debt to every $1.00 of disposable income. A figure like this indicates that many Canadians have a problem managing their finances even though it’s one of the most important life skills a person can have.
I had the opportunity to ask Jane Eisbrenner, President and CEO of Junior Achievement (JA) Central Ontario, a few questions about financial literacy and how parents can help their children become more financially literate while increasing their own money management skills. JA is the largest youth financial literacy educator in the country, providing free financial literacy education through partnerships with schools, with funding and volunteer support from private organizations.
How do you define “financial literacy”?
JE: There are a variety of definitions for financial literacy, but our practical definition would be to empower individuals to manage their personal finances in a manner that promotes responsible spending, saving, and sharing.
Why should children learn about money management?
JE: The discussion of personal finances seems to be a taboo subject in the adult world, but it shouldn’t be at home.” It’s important for parents to talk about money, not only to ensure they stay on top of it themselves, but because they are raising the next generation of money managers. In 2011, it was reported that a little over 50% of all Canadians admit to not using a budget. Also, 25% of high school kids are graduating with credit card debt. I think this is one of the clearest illustrations of kids not understanding how to manage money.
When should you start teaching your kids about financial literacy?
JE: Parents should involve children in family budget discussions at an early age so they understand choices need to be made – “Are we going to do repairs to the house this year, or can we take a family vacation?” It is the position of JA that ALL individuals require this knowledge regardless of household income. Therefore, less privileged students require the same skill to manage income as those from more affluent backgrounds. It is also the position of JA that instilling basic financial concepts should start early. JA programs in Canada begin in grade five, but money management skills and its principles should be a process of life-long learning and discipline.
What are some interesting ways to introduce money management to kids?
JE: Start with simple activities like having your kids count out the change when paying at the grocery store, or asking for their help in comparing prices of different brands. Providing children with an allowance and assisting them in understanding how to responsibly use it can provide a good way of introducing the concepts of saving, spending and sharing. Some of our programs have activities that incorporate budgeting for wants, needs, and long-term goals. These are exercises parents can use as well.
What impact has JA had on children in Canada?
JE: Canada’s Task Force on Financial Literacy reported in 2011 that 42% of Canadians lack basic financial skills. Children who learn about these skills at a young age have a leg up on their peers. The Boston Consulting Group did an impact study on the work of JA in Canada and found that students enrolled in our program save more, borrow less and are less likely to be on social assistance later in life. In addition, they will earn on average 50% more later in life than their peers who have not participated in a financial literacy program. These figures really speak to what learning financial literacy at an early age can do.
What are the benefits of financial literacy beyond the wallet?
JE: Money management requires discipline. It means making conscious decisions between “wants” and “needs.” This same decision-making process can be applied to everyday issues like fitness and diet.” Ultimately, the work in helping children to become solid money managers is really about empowering and nurturing them into becoming better stewards of their futures. The discipline required in becoming a good steward of your own finances encourages good judgement which can also contribute to a healthy body, mind, and home.
What are some other resources for financial literacy education?
JE: Many banks and financial institutions offer helpful activities and discussion topics to continue the learning about financial literacy. We encourage parents to seek out tools and resources to engage their children in money-related conversations. Many banks have webpages that provide information on financial education for parents and tools that can, in turn, be shared with their children.
Do you have any fun activities or stories about how you engage and teach your children about financial literacy? How do you approach this subject in your home? Let us know in the comments!