Learning financial literacy as early as possible can prevent financial disasters later in life. When children ask tough questions about money, how can technology help us answer them?
The COVID-19 pandemic exposed many flaws in the ways we teach our children about personal finance. Nearly 80 percent of American families live paycheck to paycheck, and most families lack any emergency savings. In 2021, U.S. adults correctly answered only half the questions on the TIAA Institute-GFLEC Personal Finance Index, part of a project assessing financial literacy. Through creatively applied education technology (EdTech), you can teach kids as young as six to manage their own money.
Galina Kan, co-founder of EdCraft, a game-based early education platform, McKinsey alumni, and one of Holon IQ’s Top 200 Women leading the world’s most promising EdTech startups shares her tips for parents.
- Question 1. How come the “Joneses” have a bigger house and a better car, and they never went to college?
- Question 2. Should children be paid for good grades and housework?
- Question 3. Should children get everything they want if their parents can afford expensive toys and gadgets?
- Question 4. Should parents control their children’s pocket money?
- Question 5. Should children work and make their own money?
Question 1. How come the “Joneses” have a bigger house and a better car, and they never went to college?
Challenging questions like this one are a sign that a child is growing, paying attention to their surroundings, and beginning to notice how their life looks different from others’ lives, including when it comes to finances. If you don’t answer, kids will either ask again or decide that ‘money talk’ is something to avoid.
What to consider. Can you discuss money openly and clearly? Do you feel comfortable talking about money or you are convinced that money is “beneath you”?
Responding. Acknowledge a child’s right to ask about money. Discuss different ways to make money — through jobs, entrepreneurship, investment, or inheritance. Simply by participating in the conversation, children learn to discuss finance openly. This will give them a solid foundation for the future: For example, if money wasn’t a taboo topic at home growing up, they can compare salaries with their colleagues as adults and find out if they’re being underpaid.
Question 2. Should children be paid for good grades and housework?
Paying children for chores has been an ongoing debate among experts and parents. Some believe that an allowance will nurture a child’s entrepreneurial spirit and teach them about making their own financial decisions. Others are concerned that rewarding children for routine tasks might send the wrong message.
What to consider. Acknowledge that these different approaches can exist in different families. Offering children an allowance for chores is often easier than trying to cultivate an intrinsic sense of motivation and responsibility, especially with younger kids.
Responding. In our research we found out that kids are motivated more by the fear of losing a reward than by the prospect of a reward itself. For example, when they know they won’t be allowed to play with a toy they just received. I recommend giving a reward first, but only allowing the child to keep it if they complete the task. In one of our courses, a character gets “edcoins” in advance for helping to create a successful bank.
Question 3. Should children get everything they want if their parents can afford expensive toys and gadgets?
What to consider. Think of the line between impulse purchases and responsible consumption. What’s your own approach to shopping? Are you making emotional or rational purchases?
Responding. Is a child ready to earn the money for an expensive toy or a gadget? Suggest that the child set a financial goal and at least partly cover the purchase they want. In one of our courses, the character saves up for a new bicycle, teaching students both theory and practice. If you want children to grow into financially responsible adults, the majority of their expenses should go toward necessities, rather than impulse purchases.
Question 4. Should parents control their children’s pocket money?
Pocket money is a practical way to learn money management, and it’s important to teach children how to use it wisely.
What to consider. People make mistakes: The older a child is, the more money they’ll have to manage. Larger allowances mean bigger mistakes, so it’s a good idea to address small mistakes as soon as they happen and make sure the child understands what went wrong. In our courses, for example, animated characters discuss different approaches to spending.
Responding. It’s important for parents to know how children spend their pocket money, to help guide them and teach them to make good decisions. Children should be accountable for their mistakes. Eventually, however, financial literacy is built through personal responsibility, not through tight control. At some point, parents should loosen the reins and let their children take over.
Question 5. Should children work and make their own money?
What to consider. How do you feel when a child tries to sell homework to their peers? Is this something that makes you uncomfortable, or do you think it’s an entrepreneurial spirit that just needs some guidance?
Responding. If a child wants to help out with the family business or enter the workforce, parents should consider legal limits. For a list of jobs and work hours allowed at different ages, consult the U.S. Department of Labor’s Youth Rules website. In one of our courses, animated characters open their own business and learn entrepreneurship. If you are against children making their own money at an early age, they can develop these skills through game-based learning.
Becoming financially literate is hard. To win at the money game, a child has to make many unconventional decisions. With EdTech, kids learn the inexact science of personal finance from our cast of animated characters, lessons that could prevent life-changing mistakes in the future.