The concept of financial literacy refers to a person’s ability to make sound decisions regarding their money so that they can achieve financial stability and make the best decisions on a day-to-day basis. While it all starts with a theoretical foundation, achieving true financial literacy means having the ability to use all that information in order to come to the correct conclusions and solve problems in an efficient manner.
Financial education is most effective when it is started early, as it means that the individual is more likely to have a lifelong healthy attitude regarding money. The main principles involve earning, protecting, spending, and borrowing money, but you can take things a step further as well and discuss the importance of investing and long-term saving plans. Older children are more likely to understand the concept of alternative investments, such as private equities, real estate, and cryptocurrencies. In fact, some of them might actually be aware of the latest dogecoin price prediction 2030 numbers via social media.
The Importance of Financial Education
Having adequate knowledge levels on any subject typically means that you’ll be able to make better decisions overall and enjoy more successful outcomes. When it comes to money, data estimates that only one in three adults are financially literate, meaning that many people worldwide are likely to miss out on investment opportunities and make poor decisions that harm their financial growth and stability. The main benefit of financial literacy is learning the value of money and internalizing what money is, as well as both the good and bad things it can lead to.
Teaching children how money works beyond the need for immediate purchases that make them happy on the spot will help them make more calculated decisions when it comes to both spending and saving. But using money wisely doesn’t mean saving so much that you neglect the essentials or never purchase anything that makes you happy. Instead, it has more to do with deciding if it is worth it to buy something that might be more expensive and if you’ll be satisfied with it in the long term. It is common for people to spend a lot on something and then realize they didn’t want the item all that much in the first place.
This can create a cycle that results in considerable debt. If your children want something that exceeds your budget, you can guide them to save for it to afford it themselves. This is an excellent way to showcase the value of money and teach your children that having money takes work and effort. When put into perspective, this sense of responsibility will also reflect on your children’s ability to build good credit scores and look after themselves in the long run.
Getting Started
Since financial matters can be pretty complex and require the understanding of several different concepts, you need to make sure that you can find a way to expose your children to the ideas in a way that makes them simple to understand. Abstract thinking begins developing around the age of twelve, so younger children will typically need a different approach that is based in reality and concrete examples rather than hypothetical situations, as they’re more likely to misinterpret them. One of the easiest ways to get children involved is to engage them in managing household finances. Whether it’s about paying the bills or grocery shopping, you should give them a chance to offer their input.
Leading by example is the best way to go about it, so you can begin by explaining what you’re doing and then ask for their opinion after they’ve formed a perspective on what you’re doing. Moving further, you should also ask them to explain their reasoning for wanting to spend or save money during a specific scenario. Teaching by asking leading questions will get your children to think for themselves and develop their skills in that regard. Unless it’s something that could be hugely detrimental, you can also let them make mistakes but highlight the importance of remembering their lessons.
Having children earn their own money through chores will teach them about the link between labor and income. More often than not, the children who become spoiled and overly demanding end up like this as a result of never learning about this connection in the first place, which causes them to take things for granted. This can also mean they’re less likely to value even the priciest of gifts, and it can be difficult to truly move away from this mindset. As your kid becomes older, you can ask them to contribute some of their chore money towards paying the household bills, as it will show them that money is first and foremost needed to pay for necessities and ensure you can lead a safe and comfortable life.
Additional Considerations
The manner in which your child receives their financial literacy training will depend on their age and the concepts you believe should be prioritized. Make sure to set some time aside to get them familiar with the fundamentals. They should know that they will be expected to pay taxes on their earnings, that it is crucial for them to save for the future because of the possibility of unexpected expenses such as medical bills or major car or house repairs, and that budgeting is the only way to ensure that their money will be spent wisely.
Learning to differentiate between needs and wants is one of the most challenging things to do, even for an adult, so it goes without saying that it will be all the more difficult for a child. Yet, it is essential to master so that they know how to use their money to its fullest potential. More complex notions, such as credit card scores and credit report summaries, can be approached with older children. Remind them that they can always ask questions, as it is crucial to create a learning environment that leaves room for errors without neglecting the importance of acquiring information.
Building excellent and sustainable money habits isn’t easy, but it’s all the more difficult to get started as an adult. Talking to your children about the importance of setting and achieving financial goals, building a savings account, and keeping spending under control will help them throughout their lives.
Ben Austin is the founder and CEO of multi-award-winning digital marketing agency Absolute Digital Media. Ben loves to write and share exclusive insights into the world of digital marketing from his own eyes.
