I recently experienced something with my kids that illuminated the importance of teaching kids financial independence from an early age.
Late at night, my kids developed a craving for cupcakes – as we all do. Rather than ignore the craving or satisfy it with something already in the kitchen, my kids ordered four novelty cupcakes and had them delivered to the house. All expenses – including tip, delivery charge, and meal delivery app fees – totalling $30.
Upon learning of this impulse buy in the morning, I sat down with them and pointed out a few things:
1. We could have gone to the store and bought a dozen cupcakes – three times the amount they received – at half the cost they paid.
2. Those grocery store cupcakes would have been free of tip, delivery, and platform fee charges.
3. Sometimes, you just have to let the impulse go.
This experience emphasized the importance of financial literacy among children – and not just kids learning about finances (e.g., what’s a savings account, what’s an interest rate), but kids actually getting to experience and practice managing finances. If they don’t, they may run into money troubles in adulthood with stakes far greater than $30 late-night cupcakes.
The State of Financial Literacy in the U.S. Today
According to the Financial Industry Regulatory Authority (FINRA) Investor Education Foundation’s National Financial Capability Study in 2018, only 34% of U.S. adults were able to answer four or five basic financial literacy questions correctly.
Little to no financial education results in a lack of confidence among Americans, too. A recent report by Cornerstone Advisors found that many individuals in the U.S. lack the basic knowledge and skills required to engage in sound financial decision-making, but financial confidence is especially low within the younger generations.
These low figures may be in part due to limited financial education offered in the U.S. Although 21 states require high school students to take a personal finance course, there is a substantial opportunity to improve young Americans’ access to financial literacy resources.
This lack of mandatory education leaves much of the responsibility to parents, and while parents may have their kids’ best interests at heart, they might not know how to navigate the financial literacy resources their kids need.
Teaching Kids Financial Independence
At its most basic form, teaching kids how to be financially independent has two components: financial education and financial experience.
Financial education is typically what first comes to mind when considering financial literacy. Does your child know what a savings account is? Do they know what an interest rate is? Do they know how to build a 401k account? It’s critical that parents teach kids the fundamentals and terminology of finances.
However, a new wave of parenting considers taking a different approach to teaching their kids about finances with financial experience. Through financial experience, kids not only learn about finances, but also get the opportunity to practice spending, saving, investing, and donating money in a safe, parent-controlled environment.
Some parents give their kids an allowance or use fake money to mimic budgeting. They’ll sit down with their kid weekly to go over imaginary finances for the week – rent, food, utilities – and teach them how to navigate weekly “expenses.” Other parents teach their kids about investing by purchasing stocks in their kids’ favorite brands and watching them change in value over time.
Both financial education and experience are critical for teaching children important, responsible financial habits to prepare them for adulthood – and late-night cupcake cravings. Banks and credit unions can – and should – play a key role in supporting parents in their families’ financial journeys by adding financial literacy resources to their platforms.
Banks and Credit Unions’ Role in Children’s Financial Literacy
By offering families financial literacy resources and a space to practice responsible money management, banks and credit unions stand to gain more lifelong customers in two ways:
1. According to a Cornerstone report, financial institutions that offer two products in their offering increase their customer tenure by 166% compared to institutions that offer only one product. By adding financial literacy resources to their platforms, banks and credit unions may see their customer tenure rise.
2. By exposing their brand and banking platform to kids when they’re first learning about finances, financial institutions introduce them to a safe, digital-first banking experience at an early age. The same Cornerstone report found that U.S. adults, on average, have used the same primary checking account and savings account for 17 years, illustrating the importance of targeting younger demographics.
One way financial institutions can support parents in teaching their kids financial independence is by implementing a white-label family digital wallet into their banking platform.
Integrate a White-Label Family Digital Wallet
REGO’s family digital wallet includes financial literacy resources kids can learn from in a familiar, digital-first environment. What’s more, it gives families the space to practice spending, saving, investing, and donating money in a safe, parent-controlled platform.
REGO’s family digital wallet can integrate into a bank or credit union’s existing platform or app, or they can customize REGO’s standalone, white-label app with their institution’s branding. Whichever option they choose, each transaction is safe and parent-controlled.
As the only certified COPPA and GDPR compliant family digital wallet on the market, REGO is an expert on children’s banking privacy laws and can help financial institutions navigate the complicated regulatory landscape.
To start offering family banking to parents and their kids, set up a demo with the REGO team.
