Teaching Kids About Money: An Interview with Dr. Brad Klontz
It’s commonly accepted that many high school graduates do not have enough education in the area of personal finance. In fact, personal finance classes are not even required for graduation by most high schools. So is it a surprise that when they get out into the world, they are susceptible to getting into credit card debt, neglecting retirement savings, and struggling financially? (See also: Getting Kids Started With the Stock Market)
It seems clear that kids need more education in these areas. But schools balk at offering it, especially in this era of financial cutbacks. They simply don’t have the space in their buildings or curriculum, and they don’t have money to pay teachers to teach these new classes. Many schools admit that personal finance education is a great idea, but they say that someone is going to have to step up and fund it if it’s going to happen.
H&R Block’s Dollars & Sense program is doing just that — offering a curriculum and scholarships for schools committed to teaching teens practical lessons about money before they’re out on their own. The company has provided more than $2 million worth of curriculum and scholarships to high schools and their students worldwide since 2009.
Recently, I had the chance to interview Dr. Brad Klontz, a financial psychologist who helped develop the program, about what it offers and what kids need to know about money. Even if your kids don’t get to participate in a program like H&R Block’s, he has some practical tips for teaching them about personal finance.
Sarah Winfrey: What will students learn in the H&R Block Dollars & Sense curriculum?
Dr. Brad Klontz: H&R Block Dollars & Sense uses Virtual Business® — Personal Finance, a curriculum developed by Knowledge Matters. Students are assigned an avatar and get to make real-world decisions in a simulation environment without the real-world consequences. The skills students learn include: budgeting and saving, choosing and balancing a checking account, getting a credit card and understanding credit, online banking, paying taxes, investing for retirement, time management, finding a job and housing, buying a car, making smart purchases, understanding insurance, and much more.
It sounds like the program focuses on “hands on” learning scenarios. How do these help students learn about money, as opposed to memorizing information on types of investments, etc.?
The simulation software is very hands on, allowing students to learn and practice key personal finance skills in an engaging, interactive environment. The curriculum combines rich visuals and animations to put these important skills into practice — they learn that if they don’t purchase food, they’ll starve; or if they spend all their money on a big-screen TV, they can’t pay rent. They can’t “undo” those choices within the lessons.
Sounds quite practical. Of all the financial lessons out there, what do you think is the number one thing that graduating high school seniors need to know about personal finance or finance in general?
It is critical for teenagers to understand the ins and outs of credit and credit cards. We require students to pass Driver’s Education before issuing them a license to drive a car; however, they can wield a credit card with no training or instruction whatsoever. Shortly after they leave home, teenagers will be offered credit cards. Without an awareness of how credit and credit cards work, they will be set up for failure.
What sort of tactics do you recommend for helping students understand using credit cards or taking on debt?
Nothing works better than direct experience. In addition to talking to teens about how to use credit wisely, parents should give their teenagers the experience of paying interest.
For example, consider advancing their allowance if they ask, but charge them interest. Currently, the average credit card interest rate for someone with bad credit approximates 25%. Since teenagers don’t have a credit history, they would be considered a higher credit risk, so 25% interest is about right. You could advance them their $20 allowance on Friday, and then take $5 out of next week’s allowance. If they take you up on your offer, the instructional moment will arrive the following week when you give them $15 instead of $20. Talk to them about how this experience is similar to carrying a balance on credit cards, where you sacrifice having more money in the future for being unable to delay immediate gratification.
Have you found any personal finance topics appeal to teenagers the most? How does the program incorporate these into what it offers?
Teenagers get very excited about the idea of compound interest. When they see how saving just $100 per month invested at 12% interest would give them over $3 million dollars by the time they are 60, it blows their minds. If all teenagers learned and practiced this very simple lesson, we would have a nation of millionaires within a generation. The simulation experiences H&R Block Dollars & Sense provides gives students the opportunity to experience compound interest versus just hearing about it.
What advice would you have for parents looking to supplement the financial education their child receives (or doesn’t receive) in school?
Because money management is often a difficult discussion for parents and teens to have, here are a few tactics parents can implement when helping their teens become smarter about money management:
- Hold off on giving them advice and just listen. Or ask questions to help start the conversation, such as:
- How do you think people get wealthy?
- What are your financial goals?
- What do you worry about regarding money?
- Allow your kids to experiment, make mistakes and learn from them. For example, give them an allowance, but don’t bail them out if they run out of money. This lesson provides an opportunity to examine financial missteps objectively and come up with strategies to do it differently next time.
- Encourage them to think before making a purchase and to wait a day or a week before buying it. If they still want it, it’s a good opportunity to talk about a spending plan.
- Model healthy financial behaviors your teen can follow. Kids learn more by what they see their parents do than what they say. For example, it’s a good idea to decide on something you want to purchase as a family. Then involve them in the budgeting and saving for it.
[End of Interview]
As Dr. Klontz suggested, there’s so much that parents can do to help their kids learn about personal finance, and these ideas are just the beginning. If you’re interested in getting personal finance curriculum into your child’s school, talk to some administrators and see if they’re willing to apply for some of H&R Block’s scholarships.
Right now, some schools have already submitted their applications to be part of this program. Until April 15, you can go online at H&R Block’s Dollars & Sense website to view these applications and vote for the school or schools that you think most deserve the chance to teach this curriculum. The winners will receive their grants by the end of the current school year. It doesn’t take long to vote, and your time goes towards helping high schoolers learn valuable financial skills.