Benefits of Teaching Financial Literacy to Children
You have likely witnessed the consequences of poor money management at some point in your adult life. Most times this happens because you were unprepared, didn’t understand certain concepts, or weren’t given the recourses to make the best decisions. In order for our children to be well equipped and avoid such harsh experiences, we must teach them financial literacy principles, so they can process, mess up, and learn while they are still young.
By the time most kids reach middle or high school, they understand the worth of money. It buys them toys, clothes, and treats. Essentially, they understand that money is good. The tough conversation is explaining the effects of poor spending habits, and irresponsibility. This is where creating a base understanding of financial literacy is needed. Initiating a conversation with children about money may seem intimidating, however, it will open a personal dialogue by allowing them to learn from your mistakes. Money is never an easy topic to talk about, but when it comes to your kids, no burden is too heavy. We want them to excel in their lives, and it all starts with a strong understanding of money and an environment to ask questions.
What is Financial Literacy?
According to Investopedia, financial literacy is “the ability to use knowledge and skills to make effective and informed money management decisions.” Being financially literate means you understand money management and have the knowledge to make educated decisions about your finances.
Why is Teaching Children about Financial Literacy Important?
In today’s society, a great percentage of the youth has very little knowledge of money management, leading to poor financial decisions. Most teens and young adults spend money because they have it, not because they need it. Teaching them financial literacy at an early age allows them to ask questions and explore the wonders of money in a safe environment. Though it may seem daunting, teaching the basics may be easier than you think. By teaching them how to save, earn, and spend wisely, you are giving them the tools to make smart financial choices in the future.
Some key takeaways that children can learn from open conversations about financial literacy include:
- An understanding of the importance and value of money
- Developed saving habits
- Knowledge of how to avoid financial debt in the future
- Smart financial decision making
- An understanding of how money works in the real world
- Differentiation and prioritization of wants and needs
- Developed financial self-sufficiency
The earlier children learn to be financially literate, the more confident and knowledgeable they will be with their finances in the future.
Ways to Get Children to Start Thinking about Money
There are many ways to initiate the value of money within your children. You can make it fun or even provide incentives – the goal is to simply start! Some good examples of how to start include:
- Give them a piggy bank: Teaches how to save money
- Encourage them to get a part-time job or do chores: Develops an understanding of the time value of money
- Give them an allowance: Requires children to prioritize their wants and needs
- Open a savings account: Encourages saving and provides a basic understanding of how a bank works
Helping children understand the value of a dollar, the importance of saving, and how to earn their own money, will help them understand that money doesn’t just show up in Mom and Dad’s pockets – although that would be nice. They will begin to realize that earning money requires work and time.
Essentially, you want to open the floor of finances to discussion. Financial literacy is not something kids will want to learn on their own, it is up to you to encourage, be honest, and provide them with the resources to grow. It will teach them the value of money and allow you to be an example to them. At the end of the day, our youth deserve a solid understanding of the thing that makes our society work. Help them so they can help themselves later in life.