How do you determine the secret to money mastery? If you are the Consumer Financial Protection Bureau (CFPB) with an annual budget of more than $600 million a year, you do the research and release a 65 page report with the name Building blocks to help youth achieve financial capability. Based on this report, with the right help, your kids could become masters of the money universe.
The four-year-old who can't keep his nose clean? They could one day clean up in the stock market.
The eight-year-old who can't multiply? One day they could be a multi-millionaire.
The fourteen-year-old who can't save enough cash to buy a cat? They could one day save enough cash to buy a car.
What the heck, you say? No, what the HESK.
Here is what research shows are the building blocks of financial capability. Think H-E-S-K to remember what these building blocks include:
1. Habits
Good money habits will result in beneficial results like savings. Bad money habits can lead from one financial disaster to another.
2. Executive function
This is a fancy way to categorize self-control, working memory and problem solving. You need this to focus beyond the present. You need this to persevere and react flexibly when encountering road blocks. And you need this to recognize the importance of planning and goal setting.
3. Skills
Basic financial skills, like how to budget or comparison shop, are critical to making wise financial decisions
4. Knowledge
Knowing how interest works, what investments are, why insurance is important and other financial topics help people avoid costly financial mistakes.
However, don't expect your preschooler to become a mini Elon Musk. It takes time to develop money mastery. The CFPB report divides the path to financial capability into three age ranges: early childhood (ages 3-5), middle childhood (ages 6-12), and adolescence and young adulthood (ages 13-21).
The youngest age group is a good time to focus on the E in HESK - executive function. One of the best ways to do this is to read books that model the results we want to see. There are a number of fairy tale stories that teach problem solving that can be related to money, such as The Ant in the Grasshopper and The Little Red Hen. You're supposed to be reading to your kids anyway, so why not read books that will develop executive function?
The middle childhood age is a good time to focus on the H in HESK - habits. At this age children can be encouraged to become frugal, rather than spendthrift. They can start saving money for the future and recognize that delayed gratification allows us to buy things later that we can't buy now if we always spend money as soon as we get it.
The last pieces of the recipe for success, that are ideal subjects for adolescence and young adulthood, are the S and K in HESK - skills and knowledge. You only have to read everyday stories about how many people are deep in credit card debt or have inadequate retirement savings to recognize that too many adults fail to acquire the skills and knowledge that would help them make better choices sooner. Big surprise: new adults make dumb money mistakes. Fortunately, some states have required a financial literacy course that must be completed to graduate from high school. That's a great help (assuming students pay attention!).
You don't have to just leave it up to the schools. The popular online learning website Khan Academy created the Better Money Habits website with the great kind of self-learning lessons Khan Academy is known for. The highly influential nonprofit Commonwealth (previously known as D2D Fund) knows that many young people love playing video games so they created award winning online games that focus on financial skills and knowledge.
Being a parent is a challenge and it's no wonder we often feel like we don't know what the heck we are doing. Hopefully, recognizing how Habits, Executive Function, Skills and Knowledge apply to learning about money can help you at least feel better prepared in the area of pointing your children on the path to money mastery.
