A ton has changed over the last hundred years or so—that’s unquestionable. Virtually all industries have had to accommodate in some way, and the finance industry is no exception. The difference between the way things were and the way things are now has big implications for how you teach your kids to manage money.
In the Past…
In “the olden days,” most of what people did with money was done by hand. The ledger was indispensable, and people spent a lot of time calculating at home or in their business offices. They were able to do much of what was necessary for their businesses, estates and everyday living because they had a grasp of the financial concepts, investment options and formulas to use for different situations. When they needed a little advice or help, they turned to finance experts, much as people do today, but meetings were generally in person or over the phone—that is, it was standard for people to talk to real finance representatives.
Today…
Fast forward to the 21st century. Contemporary parents might know what a ledger is, but the majority don’t use one. With the advent of new technologies, particularly the Internet, people rely heavily on computer-based calculations and estimates. If they want, they can do most, if not all, of their banking online, and a lot of individuals turn to websites if they want information about money, not in-person experts. There are definite advantages to these changes, such as a decrease in the time necessary to process finance transactions or records, but not all information people get online is accurate, and the reliance on technology for financial tasks has resulted in many individuals not really understanding how formulas or investment options work or which ones to use. There is also a bigger risk of having sensitive information such as account numbers stolen, necessitating more security and updating. With technology giving people lots of other distractions and things to do, finance is often an afterthought.
What does it all mean?
Newer ways of managing money mean that today’s kids are in a great position to handle funds quickly and efficiently—resources are there. Unfortunately, kids aren’t learning the basics behind those resources, essentially rendering many of them ineffective. They might be able to see their bank account statement online, for example, but they might not know basics like the difference between available balance and actual balance. Similarly, most kids know what a credit card is and how to use one, but they often don’t understand how the interest on the card works, or even that credit is essentially a loan and, therefore, debt. New methods also more strongly rely on abstractions, often never using actual bills and coins, which can make it harder for younger kids to learn.
What can you do?
There is nothing wrong with using new methods of money management with your kids. After all, most banks and investment offices now use computer systems, as do the majority of vendors. In fact, Bankaroo was founded on the idea that technology can be a useful tool in helping kids learn about finance. If you truly want your kids to be money savvy, however, you have to go back somewhat to the basics. Teach your kids to add up their Bankaroo hearts or pennies with long-hand math or visual counting, for example, instead of handing them the calculator. Have them work through a formula or two to understand why experts recommend one investment over another before clicking “buy” on an investment website. This melding of the old and new will ensure that your children can manage their money even when technology goes blip, and that they develop the critical thinking, analysis and math skills necessary to make a distinction between good resources and poor ones.