In families, money is often one of those things we don’t like to talk about but we really should. A recent survey conducted by Ally Finance found that 83% of parents think it is crucial for their kids to learn about saving but almost 90% of those parents don’t talk to their kids about money.
It is, however, important to talk to them since the money habits we have as adults are developed from a young age. We begin to grasp basic money ideas from as young as 3 and our relationship with money is formed by the age of 7, according to a 2013 study by Cambridge University.
But there are often a number of challenges that are faced by parents wanting to instill good financial habits in their children. These include:
- Parents lacking the financial confidence to teach their children these skills
- Schools not teaching financial skills and, if they do, the impact is negligible.
- Financial literacy skills are lost if not frequently practiced
Unfortunately, financial literacy rates are on the decline. In a recent FINRA Foundation Study, only 37 percent of respondents were found to have a solid understanding of financial literacy, down from 39 percent in 2012 and 42 percent in 2009.
In fact, Timothy Ogden, managing director of the Financial Access Initiative suggests that making high school students study financial literacy is ineffective because 1) students are taught information that is irrelevant to most financial situations and 2) most of what is taught is forgotten by the time it is needed.
Similarly, a Brookings Institute study finds:
“None of the four traditional approaches to financial literacy — employer-based, school-based, credit counselling, or community-based — has generated strong evidence that financial literacy efforts have had positive and substantial impacts.”
So how should we teach financial literacy and is there an effective method?
Well it turns out it’s simple: Just focus on basic math.
Good number sense = Good money sense
Basic numeracy is used in everyday financial decisions. These include everything from comparing prices and splitting bills to more complicated tasks such as budgeting, doing taxes, and calculating interest.
The link between financial capability and basic math is common sense. Results from a Harvard Business School study found that additional mathematics training leads to greater investment income in adulthood and better credit management. Similarly, a report by the UK Money Advice Service found that the most important factors resulting in improved money management are basic numeracy skills (i.e. understanding numbers) and emotional attitude towards numbers (i.e. mindset and confidence in using numbers).
Clearly, a solid foundation in math can result in a higher degree of financial literacy.
So what can you do to improve your child’s money management skills?