myFICO Kids – Making financial awareness, protection & health a part of the entire family.
MyFICO is doing a series of 3 blog posts about children and saving in order to celebrate Financial Literacy Month and Teach Children to Save Day (April 11). For those of you with children in grades K-4th, you may be interested in our first post outlining the concepts children of those age groups are able to understand and we also included lessons about money and saving. This is our second post in the three-part series for parents with children in grades 5-8.
Let’s take a look at what children in grades 5-8 are capable of learning and what parents can do to help.
National Standards for Saving & Investing
It’s important for parents to know what the national standards are in financial education so they know what they should or should not be teaching their children. There are national standards in financial literacy as determined by the Council for Economic Education and, according to their website, those who complete school through the eighth grade should know the following about saving and investing:
- Banks and other financial institutions loan funds received from depositors to borrowers. Part of the interest received from these loans is used to pay interest to depositors for the use of their money.
- An interest rate is the price a financial institution pays for using a saver’s money and is normally expressed as an annual percentage of the amount saved.
- Interest rates paid on savings and charged on loans, like all prices, are determined in a market.
- When interest increases, people earn more on their savings and their savings grow more quickly.
- Principal is the initial amount of money upon which interest is paid.
- Compound interest is the interest that is earned on both the principal and the interest already earned.
- The value of an individual’s savings in the future is determined by the amount saved and the interest rate. The earlier you save, the more savings you can accumulate, and, with all things equal, the result is the power of compound interest.
- People save money for different reasons based on their interests and preferences. Some examples of why people save are for a car, home, education, retirement, and emergency situations.
- Federal agencies guarantee depositors’ savings in most commercial banks, savings banks, and savings associations up to a set limit.
Jump$tart, a non-profit organization that’s partnered with approximately 150 national organizations, also has a set of national standards in personal finance education. By the time children finish the 8th grade, they should be competent on the following concepts surrounding saving and investing:
- Give examples of how saving money can improve your overall financial well-being
- Describe advantages and disadvantages of saving for short- and medium-term goals.
- Explain the value of an emergency fund and why saving is a prerequisite to investing.
- Apply decision-making process to determine when to invest cash not needed for short-term spending or for emergencies.
- Define the time value of money and how small investments invested regularly over time can grow exponentially.
- Use the Rule of 72 to estimate the time or interest rate needed to double an amount of money.
- Calculate and compare simple interest and compound interest earnings and explain benefits of a compounded rate of return.
- Determine the average, median, or estimated costs of real-life expenses and create a periodic investment plan for accumulating the money for those expenses.
- Explain how stocks and bonds differ as investments.
- Compare investing in individual stocks and bonds with investing in stock or bond mutual funds.
- Compare the investment potential of stocks, bonds, and real estate to collectibles and precious metals.
- Explain how inflation affects investment returns and how to match investments to financial goals.
- Interpret the financial market quotations of a stock and a mutual fund.
- Research and track a publicly traded stock and record daily market values between two specific dates.
Right now only 43 states (+D.C.) include 5-8th grade standards and only 19 states (+D.C.) require the standards to be implemented for personal finance education. So if you happen to live in those states that aren’t enforcing the standards, your child could be missing out on the building blocks of a successful financial future.
Saving & Investing Resources Grades 5-8
When subjects aren’t being covered in school due to budget cuts, staff, or other conflicting items, it’s up to you, the parent, to step up and make sure your child is getting the proper education they need. Keep in mind when looking through these resources that some of them are designed in a very specific manner in order to comply with state standards. As a parent helping to further your child’s education, you can overlook a lot of things that don’t make sense to you because you aren’t required to follow certain time frames or standards. I suggest reviewing everything first to determine what you can ignore and what you can’t ignore. Same goes for any activity that includes a group setting.
Here are 7 resources parents can use to teach their children before entering High School (summer is the perfect time to introduce these lessons) about saving and investing, based off the national standards explained above.
Resources on Saving, Spending & Borrowing
Introduction to Earning Interest –This is a lengthier lesson plan that will require the parent to go over the terms and the supplied examples, in order, with their child. Some parents won’t feel it’s necessary to lead this portion, but that depends on how disciplined your child is. The parent will need the teacher (parent) worksheet, the assessment answer key, and the “Now You Try” answer sheet. The student will need the “Now You Try” worksheet and the “Introduction to Earning Interest worksheet. All resources are free to download and/or print.
Basics of Building Credit – This lesson plan can be used by both parents and teachers and will introduce the child to some deeper concepts related to credit, such as how you get credit, why it’s important, how credit impacts your future borrowing options, when you can start building credit, and how credit cards are a type of loan. This resource is free to download and/or print, comes with kid-friendly pictures and also comes with a short quiz with an answer guide.
Consumer Credit: Buy Now, Pay Later, and More –This resource goes over credit and includes some statistics about the state of credit and borrowing in America. Help your child work through this since this is set up as a classroom activity and therefore has group activities. This lesson comes with worksheets and fact sheets for the child to complete and review, all free to download and/or print.
Resources on Investing & Stock Market
Guide to Investing - This lesson will introduce the child to some early concepts related to investing such as the how the market works, the difference between a bull and bear market, how stocks and bonds work, how to choose a stock, and covers different investments. These resources are free to download and/or print and come with age-appropriate pictures.
Rule of 72 –This is a math formula that helps consumers understand how many years they need to save a certain amount of money to reach their savings goal when dealing with compound interest. You will get a detailed explanation of the Rule of 72 and a table that shows an example of different investment rates. You may calculate your own scenarios here, or you can print out a worksheet that includes different investing scenarios.
Double or Nothing –This lesson (lesson B) goes over the difference between compound and simple interest and how to recognize realistic rates of return. You will need to print out these free resources before starting the lesson (pages 14-21). This comes with a cross word puzzle, a word search and a glossary of terms.
Stock Purchases & Commission –This lesson goes over stocks and different stock prices and commissions. Go over the power point with your child that’s provided, free to download, and then have them work on the included worksheet to answer the questions. Make sure you download the student version and not the answer key version. Some parents won’t feel it’s necessary to oversee the power point, but that depends on how disciplined your child is.
What activities do you do with your child to encourage financial literacy?
For parents with older children, be on the look-out for our next article of standards and resources to use for those in high school.
Kari Luckett writes about financial topics for CompareCards.com and is the content strategist for CompareCards.com. Kari is the lead writer for myFICO Kids, a column focusing on teaching children about smart financial habits.