America's youth may know their way around digital technology, but they're probably not as good with day-to-day financial tasks, like balancing a checkbook or calculating interest payments.
A recent survey by PISA of almost 30,000 teenagers in 18 countries measured financial literacy and the U.S. came out in the middle of the pack, behind countries like China, Poland and New Zealand, among others. About 18 percent of American students's survey results indicate that they lacked even the most basic financial proficiency skills, while only the top 10 percent were able to perform more advanced financial tasks, such as calculating account balances.
These survey results underscore the importance of including financial literacy into teens' education. Here's how to talk to your teen about money and the financial planning process.
How Can Teens Best Learn About Investment Planning?
Why did American teens score in the "average" range when tested on their financial know-how? Experts point to a range of cultural and educational influences, such as a societal taboo related to discussing money. Along with the perennial hot-buttons -- religion and politics -- money isn't often considered a topic for "polite" conversation. In fact, a recent study by Wells Fargo found that 44 percent of American adults surveyed said that personal finances was the most difficult or uncomfortable conversational topic.
Parents can overcome this cultural reluctance by modeling financial behaviors and talking about money in a less confrontational way. For instance, parents might delay large purchases, showing children that it's important to give yourself time to contemplate the consequences of spending a lot of money, or making an impulse purchase.
Taking an active approach to learning tends to make financial lessons stick longer, as well. While learning about balancing a checkbook or creating a budget in Personal Finance 101 class may be important, work in a textbook isn't as potent as a hands-on experience. Parents can help by guiding their teens through tasks such as opening a bank account or applying for student loans, being sure to explain the process at each step of the way. Gaining these practical skills at an early age may help cement positive financial habits later in life.
Financial Planning Tools: Lessons Learned First-Hand Tend to Stick
Speaking of bank accounts, the PISA study also showed that teens who had bank accounts by age 15 scored higher on their financial literacy test. When it's time for teens to go off to college or enter the working world, this practical experience, such as managing a bank account or understanding how credit works, becomes even more crucial. Parents may also want to take their teen along to a regular appointment with their wealth advisor.
Along with modeling behaviors and providing hands-on experiences, parents can help their teens become financially savvy by encouraging dialog about financial issues. The 360 Degrees of Financial Literacy project offers online resources and activities that parents can use to improve their teens' financial skills, from saving to using credit, banking to budgeting.
While schools may offer instruction in personal finance, parents are perhaps the most important resource when it comes to helping teens learn the financial strategies that they'll need in the future.