Back to School: Financial Literacy for Kids

Back to school shopping is about to begin. For kids it means new stuff, but for parents, it means spending a lot of cash. As kids are preparing to head back to school, there's one lesson that parents might want to pass on to their children - the value of money.

Money can be a touchy subject in many American homes. In the seventh annual Financial Literacy Survey of U.S. adults, a full 40 percent of adults gave themselves a grade of C, D, or F on their knowledge of personal finance. And adults aren't the only ones struggling. A popular and controversial news story profiles Kim, a college student who, coming up $20,000 short her senior year, publicly blames her parents for her financial ineptitude:

"Maybe they should have taught me how to budget a little bit more carefully. They never sat me down and had, like, a real serious talk about it." Harsh, but if we think about it - perhaps more communication could remedy the situation for parents and their children.

Kids Today

Teaching kids about money can be a difficult discussion to have, and it can be easy to put off until later. But parents ... kids listen to you. According to TD Ameritrade's 2014 Gen Z survey, 51 percent of Gen Z report that their parents are still the number one resource for learning about money.

The survey did find three areas in particular where kids could use a little guidance: managing credit card debt, saving for retirement and the best ways to invest:

• As Gen Z gets older, they are starting to chalk up credit card debt, with an average debt for post-college Gen Z of $975. In 2014, only 40 percent of Gen Z said they pay off their credit card bills monthly, compared to 59 percent in 2013.
• When it comes to planning for retirement, most in Gen Z plan to start a job, buy a car, pay off student debt, get married, buy a home, THEN begin to save for retirement - in that order.
• Only 17 percent of Gen Z believe that the best way to plan for retirement is to invest in the stock market. The good news? That's up from 11% a year ago. Forty-four percent believe that a savings account is the best way to prepare for retirement.

Start Today

The majority of teens (76%) report that the best time to learn financial literacy is in kindergarten through high school. So whether you're back-to-school shopping for a first grader or a tenth grader, use these tips to get the conversation started and set kids up to become money-savvy adults:

1. Establish good savings habits early

Encourage your kids to save early and regularly and teach them how to establish a budget. Explain how to identify expenses and income as well as the difference between "needs" and "wants." Help them understand the importance of living within their means and avoiding bad credit.

Speaking of credit, they do need to learn about it...the right way. If your child asks for spending money, rather than just saying yes or no, establish a lending arrangement so they can live through the process -- the experience will teach them better than just telling them to stay away from high-interest credit cards.

Show them what it means to make sacrifices for things they want. For example, if they want to buy a new smartphone, determine the cost, how much they have saved and how much they need. For example, if it costs $500, they have $200 saved so they still need to save $300 more to buy it. What will they need to give up in order to save $300?

TD Ameritrade, Inc., member FINRA/SIPC. Stock investing is subject to risks, including risk of loss. Commentary provided for educational purposes only. Past performance of a security, strategy, or index is no guarantee of future results or investment success.