Oh, who are the people in your neighbourhood?
According to the classic Sesame Street song, the people that you meet when you’re walking down the street include bakers, teachers, barbers, and trash collectors — but no bankers. And while it’s understandable that an abstract money job might be as interesting to a child as the guy who makes cupcakes, that omission hurts a child’s developing financial literacy, according to new research.
Financial literacy should include knowing what a bank is.
Economists examined how children who were familiar with their local bank fared financially later in life as compared to those who lived in areas without a neighbourhood financial institution. They used Native American reservations in the U.S. for their research, as some have banks while otherwise identical reservations lack them. The results were significant: “Individuals from financially underdeveloped reservations enter consumer credit markets later, and upon reaching adulthood, have ten point lower credit scores and four percentage point more delinquent accounts.” That’s just the credit side, but you can assume the chances these individuals have made smart early investments are vanishingly small.
The conclusion: The earlier a child learns about money, the less likely they are to make mistakes when they have to manage their own. So take them to the bank, explain who does what, and answer as many questions as you can. And if the conversation goes well, why not segue into the only three things every adult needs to know about money?