Financial literacy and the generation gap: The importance of teaching money matters

Chances are your children will learn about money matters much differently than you did.

More than one-third of Americans adults today (35 percent) say no one taught them about investing, according to a survey by RBC Wealth Management–U.S. and City National Bank (RBC/CNB).

But that experience doesn’t appear to be shared across generations.

Baby boomers (born between 1946 and 1964) are the least likely to have had any sort of financial instruction, the survey found. In fact, 38 percent of Americans in this age group say no one taught them about investing. But for millennials (born between 1981 and 1996), the experience is clearly different; only 29 percent say they grew up without any instruction on investing, while another two-thirds say they learned about investing from their parents, someone else, or in school.

What’s contributing to the generational shift?

“The combination of longer life spans and the elimination of the pension has created the need for people to self-fund their retirement for the first time in American history,” says Angie O’Leary, head of Wealth Planning at RBC Wealth Management–U.S. “And the internet and technology are making investing much easier and more mainstream than it was 50 years ago.”

The experience for future generations could be different still, given growing support for some sort of financial curriculum for kids.

The vast majority of Americans (87 percent) think financial literacy is so important that it should be taught to kids in school, according to the RBC/CNB survey. According to data from the Council for Economic Education, that’s exactly what is starting to happen. The Council found that the number of states including economics in K-12 studies has increased in the last decade as has the number of states requiring high school personal finances to be offered or taken.

“This has definitely become a hot topic,” says O’Leary. “We need to make sure we’re teaching our children about financial responsibility. They’re our future entrepreneurs, business leaders and educators.”

When to talk to kids about money

Money is a topic not often discussed at the family dinner table, but perhaps it should be.

Today, 83 percent of parents with kids between 16 and 22 say they think they’ve done a good job of teaching their kids about money, the RBC/CNB survey found.

However, that sentiment declines with the age of children. Among parents with kids 11 to 15, 78 percent say they’ve done a good job teaching them money skills, but 21 percent say they’ve either done a poor job or done nothing at all. And among parents with kids age five to 10, 30 percent say they’ve done a poor job or nothing.

“It’s never too early and it’s never too late to have a conversation with your child about financial concepts,” says O’Leary. “You just need to find a way to relate it to their world.”

It may be difficult to have that conversation, but it’s important to try, O’Leary says.

“You can discourage kids because it can look pretty scary and daunting, but realistically, you can’t put your head in the sand and ignore the importance of these issues,” she adds.

Here are some ways parents can talk to their children about complex financial topics:

Earning money:

Discuss with kids as young as age six the basics of where money comes from and what to do with it. Associate an allowance with accomplishments, such as doing a good job with household chores; make non-essential purchases personal; and encourage work outside the home, such as lawn work for neighbors.

Managing expenses:

Talk to teenagers about smart money management. Take your teen grocery shopping to show how much things cost; discuss how to budget for the family’s next major expense, such as a vacation; show how to read electricity and water bills; and note the consequences of overspending.

Financial concepts:

Review bank and credit card statements; explain how checking accounts work; go over various savings and investment options; show how interest works using financial calculators.