3 Ways You Can Raise Kids Who Are Smart About Money

In a recent assessment of financial literacy skills, teenagers from the United States barely ranked in the top half of countries that were examined. Here's how you can change this for your kids.

Jul 20, 2014 at 1:27PM

According to the Programme for International Student Assessment's (PISA) financial literacy assessment, 15-year old students in the United States ranked ninth out of the 18 countries the study examined. The U.S. had a higher-than-average incidence of students performing at the lowest level (17.8%), and only about one in ten students scored at the top level.

This is hardly surprising, considering that very few public school programs in the U.S. include coursework on such topics as personal finance and investing.

However, the study found that certain groups of students performed significantly better than others. Here are three big steps you can take to propel your son or daughter into the top level of financial literacy.

Open a bank account
About half of 15-year old students in the U.S. have a bank account, but 70% of those in with the highest financial literacy scores do.

When children are introduced to banking, they become more familiar with conducting basic financial transactions, as well as with the concepts of interest and budgeting.

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Most U.S. banks require a parent or guardian's consent to open an account, and it is a very worthwhile thing to do. And, once your child has a bank account, make sure to teach them how to use it responsibly. It's also a good idea for them to learn how to balance a checkbook by hand (even though account balances are accessible online).

Emphasize math and reading skills
According to the study, about 80% of the financial literacy score reflects skills which are measured on standard mathematics or reading assessments. So, those students who excel at those subjects tend to have a higher financial aptitude as well.

Reading Wikipedia Tim Pierce

wikipedia/ Tim Pierce

This makes sense. If a student has strong math skills, it's easier to perform tasks like balancing a checkbook, formulating a budget, or understand how interest works. Strong readers are much more likely to be able to interpret financial documents, like invoices.

So, it's important to emphasize strong math and reading skills from a young age. Especially helpful is a firm understanding of concepts like percentages, fractions, and compound interest.

Talk about money
By far, the best thing you can do in order to give your children better financial skills than most of their peers is to talk about money.

If you don't want to do thing like disclose your salary or how much money you have in savings, that's fine. However, actively involving your kids in things like budgeting, paying credit cards, and investing is a very good idea, and less than 40% of parents involve their children in conversations about family financial matters.

Many parents are under the impression that kids will learn what they need to know about money and investing in school, and that is simply not true. In fact, in a recent survey by T. Rowe Price, only 3% of respondents reported learning what they know about saving and spending in school, and 95% of young adults say they got the knowledge they have from mom and dad. It's up to you whether or not that knowledge will be enough.

What could being "financially literate" do for your child?
There are many long-term benefits to raising financially literate children. Most importantly, it can prevent a lot of mistakes further down the road. It's one thing if your 17-year-old doesn't stick to a budget and overdrafts his checking account, but it's quite another to do the same at 25 years old and bounce a rent check.

The point is that it's infinitely better for teenagers to learn skills like money management and how to use credit wisely before they leave the nest. And, the better they learn to handle their own money, the less they'll end up needing from you!

The best stocks to help teach your kids about investing
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. So, learning how to construct a great portfolio of dividend stocks could be one of the best money skills your child could learn. With this in mind, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

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