David Ashby

One of the issues many families stress about is money. Usually it’s because we don’t have enough of it, or at least we think we don’t have enough.

In some cases, too much money causes stress. Lottery winners come to mind, for example. If you are a parent or grandparent that has spent time worrying about finances, you might like to see such stress points minimized in the life of your kids.

Educators have responded to the need for financial education. Basic economics and financial literacy courses are part of many k-12 curriculums. Most states now mandate such training. I spent 23 years teaching finance and economics in college in hopes of producing sharper, better consumers.

But there is evidence that all this education is not working. Many kids are still turning into adults who can’t properly budget their finances or save any money.

One theory: in the classroom, we saturate kids with economic facts years before they actually get to put such strategies to use. By the time they’re in the real world, they’ve forgotten what they learned in middle school. It’s sort of like teaching a kid to swim in a classroom. They’ve watched the film, read the text, and theoretically know how to swim. But they’ve never been in the water.

How do we know it’s not working? By measuring the financial condition and habits of adults who had such early training versus those who didn’t. It turns out there is no significant difference in the two groups. Those who received early training in financial issues are just as likely to have saving and spending issues as those who didn’t.

There are financial success stories out there, younger folks who have a handle on their funds. Are there any discriminating factors in this group? Is there any one thing they learned in school that might make a difference?

Yes, and its mathematics!

Math is the most significant factor in determining whether a person will successfully manage finances in their adult life. This comes out of a broad research study at Harvard by finance professor Shawn Cole. Cole found that students who took more math courses in school were better financial managers than those with less math training. More math probably means a person is more comfortable with numbers and has a better understanding of concepts like compound interest. So encouraging your child to take more math courses might pay big benefits down the road aside from just career possibilities.

Financial education is often a one-shot deal. Students take a class in high school that covers everything from insurance to retirement plans. They are not in a position to use most of it yet and then there is no further reinforcement.

Which leads us to another basic conclusion about raising financially astute kids: besides encouraging math skills, parents should reinforce financial concepts at home on a regular basis.

Use shopping trips, for example, to show why you chose one item over another for financial reasons. If you are involved in a fender-bender, that’s a good time to explain how insurance works. When a child sees a dent in a fender and then sees the bill that follows from the body shop, that experience has much greater impact than reading about collision insurance in a textbook.

A good time to educate your child is right before he needs the knowledge for a particular area. The time to talk about car insurance, for example, may be right before that first car purchase, or maybe when the child gets their driver’s license. The information you are giving them at that point is relevant and meaningful to them at that time in their life.

So, don’t just leave it to the schools to teach your kids about money. I’m a strong believer in financial education but I know it only goes so far. Real life experiences and regular conversations in the home will be more impactful to your child down the road.

And go ahead and sign them up for that next math course!

Dr. David Ashby is a Certified Financial Planner and the retired Peoples Bank Professor of Finance at Southern Arkansas University. He holds degrees in accounting and business administration and a doctorate in finance from Louisiana Tech.

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