What is Financial Literacy?
Financial literacy is a topic that has been neglected by governments, schools, and parents alike and is only now starting to be embraced in recent years due to the sad economic state in most countries around the world.
What is financial literacy?
Investopedia defines financial literacy as the capacity to comprehend and efficiently employ different financial abilities, such as personal financial management, budgeting, and investing.
A quick Google search defines financial literacy as a person’s ability to comprehend and apply financial concepts and abilities, such as budgeting, investing, borrowing, taxes, and personal financial management, to their everyday lives.
The Oxford dictionary gives three different definitions of the word finance. The third definition is closer to what we are discussing, and it defines finance as the money available to a person, an organization, or a country; the way this money is managed. It also defines literacy as knowledge or skills in a specific area. Therefore, putting the two words together, we can define financial literacy as the knowledge or skill in managing the money that you have or have earned.
I would define financial literacy as the ability to manage our daily financial (money) activities and make sound financial decisions both for the long and short term.
These daily financial activities may include shopping, paying mortgages, buying presents and gifts, vacations, paying for college, going on a date, applying for credit cards, paying for utilities as water and electricity, starting a business, investing, and any other activity in our daily lives that involves spending money.
Making your children aware of the importance of financial wellbeing is critical. They should be able to weigh the benefits and drawbacks of their financial actions regularly. This enables them to handle different financial issues when they are on their own. Above all, teach your kids that money doesn’t just come easily without hard work. Children must learn how to properly handle their funds so that they may grow up to be financially responsible adults. Every part of our lives is linked to financial decisions. Therefore, financial literacy is critical for both the parents and the children in the same measure.
To clearly understand the relevance of financial literacy to our kids, watch the video below.
Why teach financial literacy to your kids?
Statistics show that more than 90% of schools don’t have a curriculum on financial literacy. The curriculums used in most schools was put in place by the government many years ago and has undergone little to no review in those years. Yet the way of living has drastically changed since the curriculum was created. What this means is that we are teaching our kids a lot of things that might not be relevant in their present lives.
For instance, a T. Rowe Price survey found that among parents:
- 77% said they don’t always tell their children the truth about money matters.
- 50% admitted to regularly setting aside money to save or invest.
- 43% set savings goals.
- 32% avoid talking about their family’s current financial situation with their kids.
Financial literacy enables kids to grasp the difference between assets and liabilities. This is vital as this knowledge enables kids to avoid unnecessary expenditure just for sake of but rather to make purchases that actually have financial benefits to them.
Teaching financial literacy to children is actually the key to preventing future financial problems for our children and for the world. If we can teach the future generations how to manage money and how to make it appropriately, we offer the entire world a better financial outlook. Each child will contribute to the financial ruin or the financial success of our world’s future.
We can take the time now to teach financial literacy to children or we can end up teaching it to today’s kids when they turn into tomorrow’s adults. By then it can be too late. It is much easier to stay out of debt than to dig your way out of it; that is why we must teach financial literacy to our children before they leave home.
In addition to the advantages listed above, financially literate children may also benefit in the following ways:
- Children can now spend their parents’ money wisely by focusing on necessities and avoiding impulse buying.
- Investment choices made by children will be treasured by them in the future by planning.
- As children get older, they begin to take charge of their own lives.
- Being self-sufficient is a concept used to describe children who have been taught from an early age that money is earned by hard effort, persistence, and wise money management choices.
- A child will be able to make better and ethical financial decisions when choosing investments, loans, insurance, and using a credit card.
- The child will be effective in managing money and debt.
- A child will be adequately equipped to set and reach financial goals.
- A child will have less financial stress and anxiety.
The first step in teaching your children how to be financially knowledgeable is to become financially savvy yourself. The “do as I say, not as I do” approach to parenting is ineffective. Everything that we want to teach our children, be it how to create, manage, and expand their money properly, should be by example.
For your kid to learn the good money habits as saving and investing their money, responsible use of credit and budgeting, you must be doing the same things yourself first. Once you have established this, then it is time to begin teaching your kid the one life skill they definitely need to grasp for future success; that is the intelligent and responsible use and management of money.
To assist our children to develop an interest in financial literacy, take the following into consideration:
- Don’t criticize, condemn or complain
Criticizing a student who is grappling with a new concept only leads to defensive behavior rather than open mindedness. When educating your children about financial concepts, avoid voicing your displeasure, scolding, or berating them.
- Give honest and sincere appreciation
Sincerely reward your children for correct decisions or financial behavior and discourage bad habits from forming.
- Arouse in the children an eagerness to learn
Make sure you don’t impose any financial concepts in your children. Let them come up with solutions on their own if they’re having issues.
To begin teaching financial literacy to your kids, you have to start by scrutinizing your finances. Your child’s education about money should be modeled by you as well as by others who are portraying such conduct. You’ll soon have children who are doing the same things with their money that financially responsible adults do, and they’ll do it because you do it, too. Bravo!
The short-term benefits of educating your children about money is that it encourages them to create solid savings habits that might continue for the rest of their lives. For instance, they will learn how to make informed purchases, and perhaps even understand the concept of delayed gratification. In the long run, you are helping them avoid getting into debt. Through saving, your children learn the importance of planning for their financial future.
Teaching your children about money at an early age is never a bad idea. Allow your children to assist you to figure out what they’re interested in and how to effectively educate them. It’s possible to utilize their inquiries to prepare lessons and discussions about money.
Explain to your kids that money is earned and that it is based on the value that people place on the things they buy. Your kids should be taught about the fundamentals of money as soon as they notice it. We can forgive the fact that children normally tend to think that money is always accessible whenever need arises.
Iterate repeatedly that there are six things that you can do with your money. These are:
- Count it
- Earn it
- Save it
- Share it
- Grow it
- Spend it
The greatest gift that you can give your child in today’s dynamic world is to teach them about financial literacy when they are still young. Most parents are of the opinion that this role should be played by schools and teachers. However, the concept of saving money and making sound financial decisions must begin at home. When it comes to financial education, training that begins at home has lasting impact on a child’s approach to dealing with finances.
Research indicates that about one-third of high-school seniors have no clue on how to deal with personal finances. The long holidays are the perfect opportunity to begin teaching our kids about financial literacy. This is the time when parents interact with their kids closely and spend more time together.
Let’s teach our kids from a young age the basic of financial management, the importance of financial literacy and its relevance in the life that lies ahead. Many parents will ask such questions as; when I start? where do I start? what do I teach? These questions are valid and relevant but let me assure you that you have got all it takes to teach your kids the essentials of financial literacy.
As a matter of fact, from the moment your child first sees you handling money they begin creating ideas of what money is and what it does. Because the lessons your children learn about money are critical to their financial future, it is absolutely necessary that you become a good role model for your children.
Financial literacy for kids can be taught at home, in schools and also through internet. There are online programs, boardroom games and webinars that teach children how they can manage their money easily from home. These programs prepare these kids for a bright future that is financially secure. A large number of parents are working towards either leaving their children with a legacy or to at least provide them with the means with which they can obtain the tools to help them along in life. But doing this without laying a strong foundation in financial literacy will ultimately lead to bad financial decisions in which there is always no thought of tomorrow.