Building A Financial Future Using the Building Blocks Approach

How do you choose what financial information to impart to kids, and what is important? Perhaps surprisingly, according to the Consumer Financial Protection Bureau (CFPB), the most important money lessons have nothing to do with money.

That’s the central theme of this report, Building Blocks to Help Youth Achieve Financial Capability. This report, available online from the CFPB, breaks down financial literacy into three skills: executive function, financial habits and norms, and financial knowledge and decision-making. This conclusion comes from a fusion of educational research and social psychology and is an important guide for parents.

Financial knowledge and decision-making are the most often included elements in financial literacy. It’s the stuff you know. Financial habits and norms are the behaviors and conditions children come to expect. Some of this can be taught, but it’s mostly a matter of observation and socialization. Kids pick up these habits and norms from watching their parents and other adults.

Most importantly, the skill of executive function can be developed even at ages when most financial knowledge cannot. Executive function is the ability to control impulses, make and stick to plans, direct attention, and other related tasks. New psychological research suggests that these are all skills where a form of training is needed; the more we practice paying attention to something, the better we’ll get at it. Best of all, this ability can be developed at any age.

Executive function, in addition to being the most teachable skill in the report, is also the most important. Kids with developed executive function skills will find it easier to learn new information and practice new skills while also positioning themselves for future success. Of all the factors summarized in the report, kids with strong executive function skills tended to have the highest levels of financial satisfaction.

Improving executive function

Interested in improving executive function? Here are a few of the report’s recommendations:

1. Practice delayed gratification

Offer young children the choice between a small treat now and a larger one after a short period of time. Slowly increase the time increment between choice and reward. This helps to develop the skills involved in deferring instant gratification in favor of larger rewards later.

2. Planning at playtime

Before a play session, ask your child what toys he or she wants to play with next time. Then, after your child is done playing, ask him or her to reflect on how well the plan worked. This helps develop long-term planning skills and creates intrinsic rewards for sticking to a plan.

3. Involve your children in family planning and decision making

Wherever possible, encourage your children to participate in making plans for the household. They might get to pick one night’s dinner or pick from a few family activities for a Saturday morning. The experience of making decisions, whether in a financial context or not, will help develop those executive function skills.

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