I worry about the financial future of some of my students. Not because I don’t think they’re capable of taking care of themselves in this way, but from my impression of how most of society have a relationship with money. And it can be hard to make a shift in mindset in society.
Yes, there are programmes that advocate for financial literacy in schools. And yes, teachers are educating children about currency, savings and debt. But there is an absence of ownership in these programmes. I mean ownership in the sense that we teach children to work for money, rather than making money work for us.
Many in society are slave to their jobs and salaries, finding ‘holes’ in their lives to fill with the next promotional raise and then still want more. Many who think owning their own home is the pinnacle of investments that will set them up for future retirement. Many who have less than $1,000 in savings and, scarily, even more who have less than $100. People who spend $20 on a lottery ticket rather than save that money; taking chances rather than taking control.
And what is this teaching children? Misconceptions about money, constructed by society for so long that people honestly believe fallacies such as credit cards being dangerous to own because of the dangers of getting into debt, when in fact utilising credit cards in an effective way gives you an attractive credit rating for banks, necessary for acquiring loans (and ‘good’ debt).
It is high time we start an honest, informed conversation with our students about financial literacy. Hopefully, through classroom discussion and hands-on activities, we can start to affect change.
Because the language and topic can be complex, the lessons need to be fun and playful, using games that can simulate real life situations so that children’s attention spans are maintained. I implemented only a few lessons before the children took one of the games I had taught them into their own hands. Very quickly, they had started a schoolwide phenomenon where they developed and issued a school currency that everyone then used to buy natural items (e.g. rocks, sticks, fruit, leaves, flax) off each other during lunch, creating little storage pits and bartering for areas of the schoolyard to set up ‘shops’ made of bamboo. Social connections, compromises and a greater understanding of trade permeated down to my newest 5 year old who used her silver tongue to sell an interesting rock for much more than she had bought it for!
Here I have included a list of dichotomous key understandings in financial literacy, limited to the most effective lessons I have had with students – you can take these ideas as starting points and continue as far as your students want to go with it. Once children know there are two sides to the financial story, they can make a more informed choice about which side they would like to be on.
Although some of these key understandings can be adapted for younger or older children, I have delivered the most successful lessons to the 9-12 year old age group.
To give children a fair opportunity for success, we need to educate them on financial choices and their consequences.
Key Understanding #1: Currency vs. Money
Currency is not the same as money. And vice versa. It’s unsurprising to realise that not many adults, let alone children, understand the difference. As teachers, we need to know the distinction between the two before moving forward. And a great way to do this is by using a timeline.
Timelines are a tool that Montessori teachers use as a visual narrative of history; they can stretch for long distances to really give children an idea about the origins of earth, life, early civilisation and modern history. Ours goes back to ancient trading routes being established 3,000 BC (approximately 5,000 years ago), with precious metals such as gold and silver being introduced into circulation in the 5th or 6th century BC. The timeline continues through the centuries, outlining when paper notes were introduced to represent larger amounts of coins that took longer to transport, to bank notes that could be exchanged for the gold and silver kept in a bank for safe keeping and investments, to the time when fiat currencies were introduced and the gold standard removed, to money becoming digital and transferable via devices.
When all of this information is laid out before the students, they can see how it is all organised and connected. They can understand that money holds its intrinsic value (e.g. gold or silver) and currency holds no intrinsic value (e.g. fiat currencies backed by the governments that issued it, with no physical monetary value attached to it). If all the fiat currencies of the world imploded, we would revert to gold and silver for buying power.
When I present the timeline to my students, I try to use objects that represent each key event in financial history. I would bring in some items of trade (or realistic pictures of them), silver bullion coins (99.9% silver), coins with a smaller silver percentage, coins with no silver content, and a variety of bank notes from different countries I’ve visited. If you can’t source any of these items, using realistic pictures or photos can still provide a good visual representation.
Key Understanding #2: Assets vs. Liabilities
A fundamental skill of financial literacy is looking at an object or opportunity and knowing whether it presents itself as an asset or liability.
An asset holds the guarantee of future economical benefit, whereas a liability is an obligation to be ‘paid off’. For instance, using money to buy shares in a successful business would be an asset, but buying a nice car would be a liability as it would continuously need money funnelled into its operation as well as its value depreciating over time.
So why do children need to understand this difference? Whether they get an allowance or an after-school job, children start to earn their own income at a young age. This is new and exciting for them, and they will look to redistribute their income and experiment with this newfound freedom. We can help them understand that saving to buy the latest gadget is a liability, and to look at ways to direct their income into assets that will hold or grow in value over time.
Key Understanding #3: Savings vs. Investments
This is closely linked with the second key understanding, but I have given it a separate section due to its importance. In accordance with the above, we can view savings as the liability and investments as the asset. Sure, savings are important BUT they are not the be-all-and-end-all of how you should distribute your income.
Children need to understand that their income is losing value as it sits in the bank, that it is better used in an investment that will bring greater return than the pitiful bank interest rates.
Key Understanding #4: Earned Income (Time) vs. Passive income (Money)
Is your time more valuable than money? Then this key understanding is for you.
Read ‘earned income’ as what you have earned through time that you have exchanged for income. At it’s most basic level, this is income from a job. This is what we get in our pockets exchanging our time to teach children (and all the extra work that comes with it).
Passive income may involve an initial investment of time to set up, but then will continue to fill your bank account with no extra work or time on your part. An example of passive income could be an investment you have made into a business that gives you a return every month.
It is important to understand this difference. We often make the mistake of asking children the question: what do you want to be when you grow up?
It can be beneficial to ask children what they are most passionate about (in a roundabout way), but this question is often loaded with extra weight which can build into an internal pressure on our youth to choose a career path or otherwise be lost. Some adults may say “I’m passionate about what I do, so my time IS more valuable than money.” However, what if you could have both? You can choose when to work but not have to worry about money.
To give children a fair opportunity for success, we need to educate them on financial choices and their consequences; the rest of their lives do not need to be defined by a single job or role if they don’t want it to be.
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