Skills are the specific financial knowledge and problem solving methods we all use to make healthy financial choices. What is a credit card and how is it different than a debit card? How do you compare interest rates on savings accounts? What sources of financial information are credible and reliable? Skills are far more age dependent than the other two building blocks; it’s difficult to imagine explaining how a credit score works to a 6 year old. But like mindset and habits, there are things you can do to help your children learn these skills as they grow.
At the earliest stage, very basic math skills and the simplest financial concepts are all you should be thinking about. Can they count, do they understand what money is and how it’s used, do they know that some things cost more than others? There are lots of books and games that can make this fun.
In the grade school to pre-teen years try to teach some basic money management (their own allowance is a common place to start) skills. Begin helping them save for things they want, learn how much things that are a part of their everyday lives cost (clothes, food, transportation, etc), and how they can use the financial system to help them with a savings or checking account.
The teenage years are when more advanced concepts come into play. Interest rates – both paying them and receiving them, are important. They should understand the dangers of personal debt, how easy it is to create and how difficult and expensive it is to get rid of. Most importantly, since you can’t teach them everything, they should begin to understand how to learn new financial topics themselves. It could be buying their first used car, applying for college and financial aid, or getting their first job. The new financial experiences and topics are going to come at them quickly – learning how to learn is important. What sources can they trust? What should they do when an offer seems too good to be true? Are they confident enough to say “no” to an adult that’s pushing them into making a financial decision quickly?
As with the other building blocks, the easiest way for most parents to get started with teaching skills is to begin involving your kids in your day to day and month to month financial activities. Don’t make it a chore, but they should know that you check your credit report a few times a year for accuracy (You do, right?). If you accidentally miss a payment on your credit card show them the late fee and what it cost. Just like you want to prepare them for adulthood in other ways, the basic financial skills they’ll need can come from you.