Money. It’s a touchy subject. For a lot of us, it brings up a complex web of emotions, such as anxiety, embarrassment, even shame. We’ll talk about infidelity, addiction and politics before we even think about broaching a conversation on money. And that’s totally understandable, given the connotations of status and privilege that hang off money in a culture like ours.

But, as understandable as it may be, it’s also damaging. Given the power and influence money has over us, its impact on our physical, mental and emotional wellbeing is almost unsurpassable. Financial literacy, therefore, is an incredibly important asset to have, but it’s very hard to educate if the topic of the lesson is something we’re not good at talking about.

This cultural phenomenon is putting the financial futures of our younger generations at risk.

What is financial literacy?

Financial literacy simply refers to a person’s ability to understand and apply core financial skills, such as budgeting, saving and understanding debt management. It can be measured in a number of ways. One of the most common is to test a person’s understanding of interest rates, inflation and diversification.

HILDA (Household, Income and Labour Dynamics in Australia), a large, nationally representative, longitudinal survey, provides insights into Australia’s financial literacy. When compared internationally we stack up well, but the survey still found that over a third of adult men and over half of adult women are considered financially illiterate.

Clearly, there is still much to be talked about.

What is the state of our teenagers’ financial literacy?

Studies are suggesting that there is a strong household transmission effect when it comes to financial literacy. Given the above figures, you can hazard a guess at what HILDA has found concerning teenagers’ financial literacy.

28% of teenage males aged between 15 and 17 are financially literate. For teenage females in the same age bracket, it drops to 15%. This is reflective of the gender gap that exists between Australian adults.

In terms of money, these teenagers are approaching an important stage in their life. Soon (if not already), they’ll be looking at getting their first credit card, possibly making their first major investment (a degree), and perhaps looking at ways to borrow money so they can travel. Companies such as Wallet Wizard and Nimble have made credit easier to access than ever, and it’s therefore easier to find yourself in serious debt at a younger age than previous generations.

Teenagers are very capable of making decisions that can financially hurt them for decades. It’s more important than ever that young Australians approaching adulthood are armed with vital financial knowledge, such as what an interest rate actually is and the various ways of managing debt.

Talking to your children about money

A child’s behaviour and attitude are heavily modelled off their parents. We all know this. If it’s normal for them to see their parents talking about money, talking about debt or saving for something in particular, even just chatting about the finance report on the nightly news, then they’ll feel comfortable asking their parents any questions they might have around money.

Perhaps they just heard about a friend getting their first credit card and want to know exactly how it works and what an interest rate is. If money is not something typically discussed in the household (which is true for most Australian homes), then they’ll feel reticent about asking these questions. Creating an open atmosphere around financial matters is the most beneficial thing you can do for your children’s financial literacy.

Apart from that, here are some specific financial concerns that teenagers ought to be familiar with:

• Credit cards. Specifically, they need to know that ‘credit’ doesn’t mean free, and that any money borrowed must be paid back – with interest. Which leads to…
• Interest rates. What are they and how do they affect you? Also, a good understanding of compound interest and how saving from an early age – no matter the income – can really make a difference.
• Managing debt. We all have it – it’s part and parcel of our economy. The important thing is learning how to manage it and learning what is manageable given your level of income.

It’s unfortunate that money is such a taboo in our society, but the good thing is that it’s in our power to change this. Studies are showing that there’s a strong link between a person’s financial literacy in their teenage years compared to their adult years, so now is the time to sit down with your kids and have a chat.