Financial Literacy for the young ones
By: Divjot Singh
Tags: Parenting, Financial Literacy, Kids, Education, Kids And Tech

Image — Irishnews.com

The importance of financial education for kids/teens

How important is knowing how money works? Ask the question to adults and they might make you feel silly (I use the word might). Ask teens about this, and chances are that they will call their parents to get some answers.

The kids can be categorised into three age buckets:

<9 years

9–13 years

14–19 years

The three groups have different needs and pain points. Infact, parents of the three groups have different pain points and any would like to get involved in financial literacy in varied degree of involvement. Based on interviews with parents, I have put potential solutions on a spectrum from pure fun to serious. This does not mean that solution / approach for teens with age > 14–19 years should be serious or academic. This simply means that the outcomes for parents better be serious because of higher expectations from teens in this age group.

Three(generic and broad) phases of kids growth in terms of their relationship with money

<9 years - kids still are yet to get to know / talk about money in a meaningful way. Most of them have been introduced to the magical saving animal: pigs. Some may have been given some form of allowance as well. The generics nature of pain points is about awareness and exposure.

- kids still are yet to get to know / talk about money in a meaningful way. Most of them have been introduced to the magical saving animal: pigs. Some may have been given some form of allowance as well. The generics nature of pain points is about awareness and exposure. 9–13 years - pre-teen phase marks entry of kids into the realm where they expect money to be available for disposal and they start understanding more about their own needs. Most of them have been given pocket allowance, and they start making decisions for low value transactions.

- pre-teen phase marks entry of kids into the realm where they expect money to be available for disposal and they start understanding more about their own needs. Most of them have been given pocket allowance, and they start making decisions for low value transactions. 14–19 years- This phase is where the outcomes are serious for teens. They are not only focused on academics but are also open to ideas to generate wealth. This is the phase of experimentation

Nature of pain points vs age of the young ones

I got interested in solving for pre-teens, that is kids with age between 9 and 13. Most of the parents start giving pocket money or some form of allowance in this stage. This phase is coming-of-age sorts for kids and it is important that we expose kids to concept of money in this phase.

The way kids get to know about money matters is different for different kids. It depends on how parents want the relationship between their kids and money.

It can be completely transactional (and chaotic) where kids and parents try to negotiate needs vs liquidity on ad-hoc basis. The other method is a strict top-down budgeting method where there is a set budget for things kept aside with zero (minimum) tolerance for variation. The most interesting method however is learning based budgeting where you involve kids to take decisions for themselves and also educate them about far fetched ideas such as savings, compound interest, wages, expenditure planning etc.

However, at meta level, we need to understand kid’s insecurities and their relationship with money if we are solving for them. Another point to make — kids do not know about their long term pain points as they are not active customers or decision makers. My assumption is that kids ‘must’ learn about money and its nature and this need is identified by the parent, not the kids. The idea is to enable them to make certain decisions given the constraints on supply of money (income).

I am breaking down kids-money problem into several pieces, both from kids and parent’s perspectives.

For kids, key areas of concerns:

Visibility of liquidity — Kids do not know / cannot track how much money they will get in future. The future value of liquidity is available via verbal agreements that parents stitch with the kids. The key issue is insecurity about future flow of money

— Kids do not know / cannot track how much money they will get in future. The future value of liquidity is available via verbal agreements that parents stitch with the kids. The key issue is insecurity about future flow of money How to earn money? — Kids do not know can they increase flow of money. For them the only option is to ask their parents for more money. Since their needs are dynamic but the flow is static, kids feel frustration that they cannot expand the pie of their overall budget.

— Kids do not know can they increase flow of money. For them the only option is to ask their parents for more money. Since their needs are dynamic but the flow is static, kids feel frustration that they cannot expand the pie of their overall budget. Spending vs Saving decision — Kids are always in dilemma to spend now or to save for later. The now famous Marshmallow test tells us about kids with delayed gratification are more likely to succeed. However, for kids to understand this situation and then take an informed decision is a pain point. If someone can reduce this information asymmetry (in a sense because kids cannot look beyond binary decisions), kids can take informed decisions, for better or for worse.

For parents, key areas of concerns:

Kids should understand value of money — Kids should be able to appreciate the value of money and the fact that money is actually an input/output problem. To earn money, one has to give some input. Currently kids do not fathom this fact that money coming into household is due to the fact that their parents are giving something of value to the society (corporation / company) that they live in.

— Kids should be able to appreciate the value of money and the fact that money is actually an input/output problem. To earn money, one has to give some input. Currently kids do not fathom this fact that money coming into household is due to the fact that their parents are giving something of value to the society (corporation / company) that they live in. Parents want to keep a track on spending — Parents want to see where are the kids spending their money.

— Parents want to see where are the kids spending their money. Parents want kids to plan for big spends — Lets say your kid demands an X-Box and instead of just getting done with that right away, you want your kid to plan this expenditure. That is you want the kid to learn about savings and reducing spends on other activities if they plan to purchase something big

In the next few posts, I will try to cover potential framework to solve for these pain points.