Your kids financial literacy it’s not an option. It’s a must.

Parents! We need to have a serious talk about kids and their financial literacy (or lack there of). If you think this doesn’t concern your family, you’re living in a fantasy world.

As the wealth gap continues widening, financial scams and “get rich quick” schemes are on the rise. These schemes target people from all walks of life, from the financially savvy to the financially illiterate. While the financially savvy might have a chance to get back on their feet, the financially illiterate might not be so lucky.

The rise of Ponzi schemes and investment frauds has been alarming. Bernie Madoff’s infamous scam cost investors $64 billion. That took several decades. More recent crypto schemes like Luna and FTX, have drained even larger sums in just a few short years.

The message is unmistakable: Financial literacy is not a “nice-to-have” skill; it’s an absolute necessity that your children must grasp. No exceptions.

what’s the worst that can happen?

The issue is that too many individuals are financially illiterate, making them easy targets for risky and fraudulent financial schemes. As parents, you have the power—and the responsibility—to change this narrative by teaching essential financial skills in your own home.

I’m not talking about basic tasks like checking your bank account, setting up a lemonade stand, or saving chore money—though those are all commendable. I’m referring to foundational financial concepts like understanding assets vs. liabilities and the magic of compound interest. These may sound like complex terms, but rest assured, there are age-appropriate ways to talk about them.

Why is this important, especially if you’re not aiming to raise future financial analysts? Neglecting financial literacy in childhood will make them vulnerable to scams in the future. My own wake-up call a few years ago made it abundantly clear.

reality check: don’t make my mistakes

I started from nothing. I’ve been on my own since the age of 17. When you have nothing, it’s hard to focus on a skill like financial literacy. I felt like it didn’t apply to me. Why would I need knowledge on managing something that I did not have, assets? There were more pressing issues at the time like surviving on my own.

Looking back, I realize that not having that knowledge, led me to unnecessary failures. I was fortunate because those failures and missed opportunities led to a successful business. However, when it came to passing on financial wisdom to my kids, I was unprepared. It wasn’t lack of trying on my part. The problem was that I put a lot of emphasis on entrepreneurship, thinking that financial literacy would be a byproduct. Big mistake!

While entrepreneurship and financial literacy are intertwined, they are distinctly different skill sets.

• Entrepreneurship involves identifying business opportunities, taking risks, managing resources efficiently, and building an enterprise. It relies heavily on creativity, problem-solving, leadership, and communication.

• Financial literacy, on the other hand, centers on money management concepts like budgeting, banking, investing, credit, insurance, and taxes. It equips individuals to make sound financial decisions, safeguard assets, and gain financial stability and security over time.

So, whether you decide to go to the entrepreneurial route or not financial literacy is important.

My wake up call

A few years ago, during the crypto frenzy, my 12 year old asked for a little bit of money to invest. I felt proud. I thought that all that hard work to make them see the world from an entrepreneurial lens, was finally getting some traction.

That pride was short-lived when he showed me what he was trying to invest on: a crypto coin, boasting a 600% annual return. My first reaction was laughter, but upon looking at his puzzled face my heart sank. I realized that my focus on entrepreneurship had not provided any financial knowledge. How could it? Those, as I mentioned above, are two very distinct things. After that experience, I realized that I had work to do.

the cold, hard facts: scholarly support.

I know that I’m not alone in this so don’t just take my word for it. The academic world is screaming about the importance of financial literacy. A paper titled “From financial literacy to financial capability among youth”, cited a whopping 797 times, argues for a national policy on kids’ financial education. The paper was published in 2007, at the cusp of the financial meltdown of 2008. Did anybody listen? No, nothing happened, and probably won’t.

I’ll take evidence any day over the best conspiracy, but I also understand that somebody’s financial literacy is somebody’s else’s loss of profit. Let’s assume that we had enough sense to introduce a class on financial literacy, what would happen?

Well, a study titled “Motivation and financial literacy”, cited 542 times, emphasizes that simply taking a class in school is not enough for young adults to retain financial literacy. Other motivational factors significantly increased retention of that information.

Moral of the story: Ultimately it falls upon you as a parent to be the conduit of this knowledge. It’s probably one of the more challenging areas for a number of reasons. Kids are not vested because just like me at 17 they don’t believe that’s necessary knowledge. Parents are not vested because among the dozens of issues they face on a daily basis, financial literacy, doesn’t feel that urgent. But in this case ignorance is not bliss.

where do we go from here?

Here are a few topics to start talking about with your children. These are by no mean exhaustive. It’s concepts that I found helpful in getting through to my kids.

• Assets vs. Liabilities: Know the Difference

First things first, drill into your kids’ heads the difference between assets and liabilities. No spreadsheets required. Just real talk. Every time they want to buy something, ask them: “Is this an asset or a liability?” Is this item going to increase or decrease in value over time? Make them think and articulate the reason why they need to spend $150 on a pair of shoes. Maybe, they can find a pair for $50 and save $100.

Warning: you’re going to get a lot of pushback. Your kid might think this is funny and treat the subject as such. Most likely they are going to ignore you and keep asking for the same exact thing. You have to be persistent and take the subject matter seriously. It’s a very low bar for a kid to be able to articulate why they need to spend that kind of money for potentially frivolous (depreciating) purchases.

• Encourage Critical Thinking

Companies are data-mining giants. Every screen you come in contact with it’s a data-mining operation for someone who’s trying to sell you something. They know your kids’ habits better than you do, and they’ll sell them anything. Teach your kids to question everything. Tell them that behind the veneer of every desirable item, there’s a perfectly crafted sales pitch. Show them how a funny commercial is meant to persuade them to buy something. Make them skeptical consumers who think twice before parting with their hard-earned cash.

• Investments: No Get-Rich-Quick Schemes

Teach your kids that if it sounds too good to be true, it probably is. Talk to them about the basics of investment like the miracle of compound interest and the golden rule of diversification. Make them understand that financial success it’s a life long journey, it doesn’t happen overnight. Most sales pitches from the benign to the scams rely primarily on emotional factors. Highlighting the importance of fact based, pragmatic thinking today will give them a fighting chance tomorrow.

• Make It Engaging: No Boredom Allowed

Use everything you can, games, apps, etc. I personally have found podcasts like Planet Money to be a good source of information for them. If you’re driving places that means you have a captive audience. My son wrote a paper in middle school on the “Chicken Tax” after hearing an episode. Kudos if you know what that is. Never let a good news headline go to waste, use them to illustrate your point. Bringing real life examples is a great way to demonstrate cause-and-effect. If you make it fun, they’ll absorb the lessons like a sponge. If it’s a chore, good luck getting them to pay attention.

You are not always going to be successful with your messaging, however, don’t give up. Try different methods to see what resonates best with them.

• Keep the Dialogue Open

Don’t make this a one-time lesson. Keep talking about money, investments, and financial choices. Some parents conflate financial literacy with simple math. Although finance requires math, financial literacy it’s not just about calculating numbers. It’s more about introducing concepts and creating good habits. Ask for their opinion so they’ll feel that they are a part of the conversation.  Try to always keep it age-appropriate. The more they’ll hear you talk about it, the more they’ll absorb. Remember, you’re in this for the long-haul, be persistent, but also be patient.

takeaways

Look, the world isn’t going to wait for your kids to catch up. Financial literacy is a lifelong journey, and the earlier we start, the better. Let’s equip our kids with the tools they need to navigate the complex world of personal finance. You’re their first and most important teacher. Your children’s future financial security is in your hands. So, stop making excuses and start raising financially savvy kids.

How are you going to start?