It’s back-to-school time, and parents are busy helping their kids get back into learning mode. It’s also the perfect time to add a new lesson to the curriculum that will last a lifetime: money management.
Arkansas ranked last in financial literacy, according to a 2024 WalletHub study that analyzed financial education programs and consumer habits across the 50 states and the District of Columbia, ranking them based on three main dimensions: financial planning and habits, financial knowledge and education, and WalletHub’s proprietary Wallet Literacy test scores.
“Teaching kids money management skills from an early age can help reverse these trends,” says commercial banker Katie Ratliff. “Teaching kids the basics of budgeting, saving, and spending wisely increases the likelihood they’ll develop healthy, lifelong financial habits. Building these skills can help prevent financial mistakes that lead to financial instability, lower credit scores, and inadequate savings for emergencies.”
Ratliff offers some helpful tips for parents when talking to their kids about money.
Start learning about money early
It’s best to start teaching your child about money when they’re young. Children learn primarily by observation, so take them shopping and help them compare prices. Ask them, “Which one is cheaper and will save me money?” Parents can also give their child a clear piggy bank to fill with coins and watch as their savings grow.
Teach budgeting using weekly allowances
As your children get older, a weekly allowance can help teach them good money management practices, along with the following principles:
Differentiate between wants and needs. Spending freely is not money management. Save before you spend. This will help you avoid short-term or long-term debt. Value working for your money. Earning money makes you more careful about your spending. Comparison shop. Research helps you save money.
With the power of the wallet, it won’t take long for kids to learn to save before they spend. As they get older, they’ll gain the ability to decide whether it’s worth forgoing everyday purchases that bring short-term gratification in order to save for “the next big thing.”
Parents might consider giving their child a small percentage of their total savings each month in equal increments to provide compound interest and show them how the money they save grows.
Lessons for college students
If they haven’t learned it before, young people will now know how quickly little things can add up to big amounts of money. A big lesson for all college students is to look for ways to save or make money everywhere.
Online coupons, generic brands, student discounts, and generally frugal living should be the norm by the time you graduate. Earn extra cash by selling things you no longer need, like old textbooks or clothes. Babysitting, dog sitting, and lawn mowing are also income options. If you’re a student with a part-time job, set up direct deposit so you can save money first. Using cash to buy things makes it harder to get into debt. Debt is a good reminder that money can disappear quickly. Don’t rely on credit cards unless you can pay off the balance in full each month.
Spending mistakes are inevitable, but they can also serve as good lessons. Committing to save, save early, save consistently, and track your spending is one of the best practices for building healthy financial habits.
