Tips for Teaching Kids about Financial Independence

Using every day opportunities to educate children about personal finances

Silver Spring, MD - As millions of students across the country prepare for year-end exams and/or graduation ceremonies, the National Foundation for Credit Counseling (NFCC) encourages parents to continue the learning process by teaching children about the importance of saving and smart money management.

While some schools are offering money management or financial education courses, a significant number of high school students still lack a basic understanding of general financial concepts related to stocks, bonds, savings accounts and checking accounts, according to the most recent survey from the National Jump$tart Coalition for Personal Financial Literacy. The average score on the 2006 survey, given to high school seniors to measure their knowledge of basic financial concepts, was only 52.4 percent.

The NFCC suggests parents take the following steps to arm their children with smart financial skills that can place them on the path to financial literacy rather than debt overload.

"Children are never too young to start learning the smart financial skills that they will need and use throughout their lives," said Susan C. Keating, President and CEO of the NFCC. "Every day life is full of opportunities to teach children how money works and the value of saving money - from watching parents place loose change into jars, to collecting allowance money, to observing parents' spending habits."

  • Examine your own attitudes about money. Like it or not, most children will not necessarily practice what you preach, but instead follow by example. Imagine a child who sees a parent always purchase the latest technology gadget versus a parent who saves for several weeks to purchase a new TV or computer.
  • Communicate openly with children about personal finances. Words like reconcile, savings, interest, credit debt are commonplace for adults but not for children. Take the time to sit down with young children and teach them what each of these terms mean. For older children, start to talk about the importance of IRA and 401(k) retirement accounts, and the difference between risk and return on stocks and bonds.
  • Arm children with basic financial tools. Open a savings account for your child - whether s/he is a newborn or about to enter high school. Show your children how to add gift money or part-time income to a savings account. Or consider purchasing a savings bond or some stock for your child to let her/him see first hand how the money can grow, and at what speed.
  • Teach children about budgeting. Consider giving your child an allowance and talk to her/him about plans to save or spend the money. Explain how if s/he uses the $5 on candy, it will take him longer to save money for the latest video game s/he wants.
  • Where possible, turn every day errands into personal finance lessons. Let your children see you compare the prices, use coupons, or broker a discount on a large purchase. Take the time to explain how and why you make your purchasing decisions. Show children smart purchasing tips such as sticking to a list of needed items, or purchasing birthday gifts in bulk.
  • Teach children about the correct ways to use debt. With credit card companies aggressively targeting college students and more parents giving their teenage children credit cards, now is the time to teach children how to use credit wisely. Explain to children the circumstances under which debt can be used wisely and the importance of paying off the credit card every month - or paying at least double the minimum payment.
  • Teach children about loans. Most children don't necessarily realize that their parents don't "own" their house, or realize the products for which people take loans. Take the time to teach children about the importance of having a monthly loan within your monthly income, and the importance of paying all bills on time to ensure a good credit rating, which can translate into a lower loan rate.

Taking steps now to educate children about the smart path to financial literacy will benefit children for years to come - and may serve as an opportunity for parents to get their finances back into shape, too.

For more information about financial education courses for families in your area, contact the NFCC at 1-800-388-2227.

The NFCC, founded in 1951, is the nation's largest and longest serving national nonprofit credit counseling organization. The NFCC's mission is to set the national standard for quality credit counseling, debt reduction services and education for financial wellness, through its member agencies. With nearly 1,000 community-based offices nationwide, NFCC members help two million consumers annually. For free and affordable confidential advice through an NFCC member, call 1-800-388-2227, (en Español 1-800-682-9832) or visit