Decision-Making Is a Financial Literacy Skill
This 14-minute podcast was released April 8, 2020. (This podcast was recorded in January 2020.)
“Decision-making is a skill that really is valuable for all aspects of our life, but it's really important when it comes to our financial lives,” says Mary Suiter, an assistant vice president and the economic education officer at the Federal Reserve Bank of St. Louis. She talks with Maria Hasenstab, media relations coordinator at the St. Louis Fed, about April as Financial Literacy Month and how parents can teach decision-making skills to their children.
Maria Hasenstab: Hello. I'm Maria Hasenstab, and you're listening to Timely Topics, a podcast series from the Federal Reserve Bank of St. Louis. Today, I'm speaking with Mary Suiter. Mary is an assistant vice president and the economic education officer here at the St. Louis Fed. Mary, thanks for joining me.
Mary Suiter: Thanks for having me, Maria. I appreciate it.
Hasenstab: We want to talk about today about April as Financial Literacy Month. So why is there a month dedicated to financial literacy?
Suiter: So there are a lot of surveys and studies that demonstrate that people in the U.S. lack financial literacy. And, so, April was designated as Financial Literacy Month in an effort to highlight the importance of financial literacy. We use this month to promote financial literacy, to promote good financial habits, try to have our citizens be better prepared for their financial lives.
Hasenstab: Well, that sounds like a really important endeavor. For those of us who may not be familiar, can you tell me what financial literacy means?
Suiter: It really means having the knowledge, skills to manage your finances and the opportunity to actually apply those knowledge and skills. We want people to understand it and use it in their lives.
Hasenstab: So what does Financial Literacy Month mean here at the St. Louis Fed?
Suiter: We promote financial literacy all year round here at the Fed. But, in April, we use the tools at hand -- podcasts, editorials, our social media channels -- to share the message about financial education, financial literacy, the fact that it's important, that it is a set of skills that people can develop and use and to just get the word out that people need to develop better habits in financial literacy.
Hasenstab: When we think about financial literacy, a key component of that is decision-making. Tell me a little bit more about decision-making and how it relates to financial literacy.
Suiter: Decision-making is a skill that really is valuable for all aspects of our life, but it's really important when it comes to our financial lives. We make decisions all the time about our finances. We make decisions about our education and our job, which is going to determine the kind of income that we earn. We make decisions about spending and saving, investing, insuring and protecting ourselves. And so learning to make careful, well-thought-out decisions is really valuable for us as we try to develop good financial habits.
Hasenstab: How does this apply to students and children?
Suiter: Our kids make decisions every day, some of them financial, some of them not. But they do make decisions about money, about spending, and more importantly, they actually influence the decisions that the adults in their lives make about money. So, by some estimates, kids ages 6 years old to 12 years old, actually influence $1.2 trillion of spending, whether that's your spending, their grandparents spending, they're helping make those choices.
Suiter: We want them to make careful decisions, to understand the value of well-thought-out decisions. So we want to teach them to do that. They're not born making good decisions, but it is something we can teach them so that they develop good habits.
Hasenstab: So when children affect adult decisions, are you thinking about when, perhaps, my children suggest we pick up fast food for dinner? Or if we're at the grocery store, they reach for an impulse buy that I may not have been reaching for the chips otherwise?
Suiter: Exactly. They might influence what you spend at the grocery store as they're trying to get you to put that extra box of cereal or a bag of candy or maybe a small toy into your cart. But they also influence maybe where you eat, as you mentioned, the movies that you see, how often you eat out, how often you go to movies because they're kind of pushing to do those things. And, so, they influence a lot of those spending decisions in families, more so than they probably did in the past.
Hasenstab: Well, that's really interesting to think about. Is decision-making a skill?
Suiter: So decision-making is a skill, and it's a skill that can be taught. People can learn to make well-thought-out, careful decisions. And children can be taught that skill. And I think having, as you mentioned, they're pushing for you to put something in the cart, or they're pushing for you to go out to dinner. Some conversation about why that's not a good decision for the family, at that point, is valuable for them so they see that you're thinking about how you're spending your money. You're making careful decisions. You're not just throwing things into the cart willy-nilly or eating out every night of the week. Having them understand, that's part of developing those decision-making skills that we want them to have too.
Hasenstab: That's a good point, Mary, because if my children are asking for chicken nuggets, they may not be thinking that it affects how much money is then in my bank account, which then might affect some other decisions we make that week.
Suiter: I think it's important, and I think we can start teaching kids pretty young how to make those decisions.
Your kids are making choices at the store often. They have a little money to spend. They get a birthday gift. So right then, when they're making those choices, having them think about what they're doing and asking them some questions to help them make the choice. Like, "Well, if you spend that money on the toy, will you have that money to use for something else? If you're saving for something and you spend the money on the toy, will you be able to use it to save for that other thing that you want?" Those seem like obvious answers to you, but they're not so obvious to your kids. So having those questions that you ask them to help them think through making a choice, I think that's one way to start with your kids and helping them recognize that it's okay to wait, that saving involves waiting, and asking those kinds of questions that get them to think about those kinds of things. Those are some of the first steps you could take in helping them along and then asking them questions to help them start recognizing what's important in making this decision.
So have you ever had your kids buy a toy and it doesn't do exactly what they had hoped when they get it home? Asking them the question, "Well, do you think that toy's going to actually do what it looks like it does on the box?" So they start to think, "Well, that's something I should consider before I buy something is: Is it going to do what I want it to do?" Or asking them a question like, "Is this something you could have fun with with someone else?" Again, what are the important things to consider when making this decision? You're helping them think about the criteria. You're not saying, "Well, let's sit down and write out all the important things." You could, and that's a tool that we use in classrooms, but just getting them to start to think about that. People make careful decisions, and they think about important things when they're making a choice.
Hasenstab: Mary, what other things can parents talk to their kids about?
Suiter: Well, I think parents can talk to their kids about things that they're doing. So, maybe you're not eating out and you tell your kids, "We're not, we're not eating out as much as we usually do. We're saving that money for a vacation we want to take as a family." So they see that you can't have everything you want. You have a limited income, and you have to make choices. Tell them what your savings goals are, that, as I mentioned earlier, if you're saving for a down payment on a car. Maybe you're saving for a vacation. You're saving for their college education. Let them know that those are your savings goals. If you have a short-term goal, you know, a new appliance, for example, if it's not an emergency, draw a picture of your savings goal. Put it on the refrigerator so your kids see what you're saving for.
Have a jar where you put your loose change. Because most of the transactions you make take place out of view of your kids, right? You're putting your money in an account. They don't see that. You take money out of an ATM, they're not really clear on what that's all about. So let them see you putting some coins in a jar every day or every week, and then you're going to tell them you're going to put that money in your savings account. Give them a piggy bank. Let them begin to save money. Encourage them to save a portion of money they earn or money they're given so they start to establish those habits. And when their piggy bank is full, open an account with them at a bank. Let them see what's happening that you're putting their money into an account and they're not going to earn a lot of interest, but they're going to earn a little interest. It's important for them to see that. But it's also important for them to know that you save for things you want in the future. So we want you to really demonstrate that for them.
Hasenstab: Those are great topics that you can bring up with your kids. And I liked what you said about then taking your children to the bank once their piggy bank is full. One of the things I've heard you lecture about is teaching kids at a young age that banks and credit unions are safe places where we can keep our money.
Suiter: And I think that you can also let them know that you work to earn income. Again, that seems obvious to you because you're doing it. But, especially young children, they may not understand that. So you go to work. You earn income, and then you make good choices about how to use your income. So you're paying rent. You're buying groceries. You're saving some of that money. Maybe you contribute some money on a weekly basis at your church. Those are things that you want them to be aware of, that those are choices you're making about your income so they see you doing what it is you want them to do, make careful, well-thought-out choices.
Hasenstab: That's a really important lesson. Thanks for that, Mary. Is there a financial literacy crisis?
Suiter: You can look at all kinds of data and information that suggests that people don't know how to manage their money and that they don't make careful decisions about their money, perhaps. And I think all of that gets rolled into being described as a financial crisis. And I don't think it's something that we can solve necessarily when people are adults. We can help them. We can counsel them to make better decisions. But if we start when kids are young and help them develop better financial habits, perhaps, we can help alleviate some of the problem because they're learning to make careful choices. They recognize that people earn income. They recognize that you have to make choices about how you spend and save your income or share your income with people less well-off than you are. So, yes, a financial crisis but one that I think we haven't necessarily approached from a systematic, start young, and work all the way through with kids, getting them prepared.
It's a difficult subject for parents often to talk about with their kids. And, so, there are a lot of barriers to having those conversations. So anything that we can do to make it a little easier for parents to talk with their kids about money, make it easier for classroom teachers to talk with kids about saving and spending and earning income so it becomes sort of built in, right? They're learning it from kindergarten or preschool all the way through and building on their knowledge of money and financial decision-making so that when they get to high school, if they're lucky enough to have a personal finance course, they're not learning everything in that course. They're learning personal finance like they do other subjects: They're starting early and building on it and getting more sophisticated knowledge as they grow. That's what we do with math. That's what we do with science. That's what we do with reading.
Hasenstab: That sounds like a really great segue for you, Mary, to talk a little bit more about your role in the economic education department here at the St. Louis Fed.
Suiter: Well, sure. Thanks, Maria. So I'm responsible for financial and economic education outreach to primarily educator audiences. And we have outreach for preâ€‘K through college professors. We do professional development for educators here at the bank. We also go to schools and school districts and do professional development to help teachers be better prepared to teach personal finance and economics in classrooms. And then we also develop a whole set, a whole array of resources that teachers can use in the classroom. So we have videos. We have online modules. We have traditional lesson plans, podcasts, readings with questions and answers, and all of that's available at stlouisfed.org/education, free of charge for any teacher, anywhere in the United States or in the world to download and use our materials. So we really try to provide a wide spectrum of services and materials for teachers to use.
Hasenstab: Yeah. And in addition to teachers, Mary, I know that's your bread and butter, you have resources specifically for parents and other consumers as well.
Suiter: Yes, we do. We have resources for parents. We have something called Parent Q&A. So if you're reading a story to your children, we have a set of questions that you might ask them about a story. So we have, for example, A Chair for My Mother, Betty Bunny Wants Everything, Little Critter Saves His Money, books that parents might be reading to their kids. They can pull up these questions on the phone, and so, as you're reading, you can ask your kids some questions related to personal finance. What kind of decision did Betty Bunny make? Was Betty Bunny saving? Was she spending? Did she make a good decision? So to sort of elicit that conversation that we want parents to start to have with their kids using the stories they might already be reading to their kids from the library.
We also have materials out there for Girl Scouts. So the Girl Scouts have various badges that girls can earn as Daisies, as Juniors, as Cadets. So we have materials out there that a Girl Scout leader can print and/or pull up on her phone and use with a troop to help them earn their badge. We also have resources that the Boy Scouts can use as part of their Eagle Scout badge. They are required to earn a personal management component, and we have resources on our website that can help them earn that component of that Eagle Scout requirement.
Hasenstab: Well, that would be so helpful for people who are leading those Girl Scout troops or working with their Boy Scouts who are working towards their Eagle Scout. That's great.
Just to restate that website you mentioned. You can find more about the St. Louis Fed's economic education resources by visiting stlouisfed.org/education. Thanks, Mary, today for speaking with us about financial literacy and the importance of decision-making.
Suiter: You're welcome. Thank you for having me.< />Hasenstab: And for more podcasts, you can visit stlouisfed.org/timelytopics. You can also stream this series on Apple Podcasts, Spotify, and Stitcher.