4 Analogies That Help Teach Children About Finance

Source: Thinkstock

Source: Thinkstock

According to a report by the Employee Benefit Research Institute, only 50 percent of employed Americans state they could get together $2,000 if an unexpected financial situation arose within the next 30 days. This goes hand in hand with estimates from a Statistics Brain report, indicating 25 percent of American families have no savings at all, while an astonishing 38 percent do not have an emergency fund. Many American households have imperfect personal financial health. In some cases, this is the result of the consumer having a paucity of financial education. According to data from the National Foundation for Credit Counseling, 41 percent of consumers graded themselves either a “C,” “D,” or and “F” on their knowledge of personal finance.

This level of unfamiliarity with personal finance among Americans has caused the discussion of children and financial education to become a hot topic. Teaching children about financial education early on provides a base foundation of knowledge for them to build on. Parents do, however, sometimes have a tough time translating the basic essential elements of finance and financial health for children as these concepts are somewhat involved, particularly for a child. These analogies can help simplify some of the basic financial topics.

1. Budget and Debt Accumulation – Child’s Bedroom

When explaining the concept of budgeting and debt to a child, an effective analogy to use is her bedroom. When the child’s bedroom is organized, neat and tidy, he can locate all of her possessions and items generally do not get lost in the mix. When the bedroom is neglected, clutter accumulates. Each day that goes by without cleaning the bedroom, it becomes a more arduous task to accomplish. A messy bedroom is like a messy financial situation — tracking items becomes exasperating and organization, increasingly difficult.