Financial Literacy for Kids

Introduction

One of the best gifts that you, as parents can give to your child is the gift of Financial Literacy. It is a core life skill that everyone should possess. However, people tend to learn it much later in life – after getting into huge debt. Is this something that you want for your kids? Certainly not! Learning how to make sound money decisions now will help give kids the confidence to make better decisions tomorrow.

What is Financial Literacy?

Financial Literacy is “the ability to make informed financial decisions and manage financial resources effectively.” In short: It is understanding how to save your money, budget your expenses, increase your wealth using the power of compounding, investing your money to generate high returns and protecting your finances. It teaches us how to avoid getting into debt and also ways to get out of a debt trap. It is a skill which benefits you in the real world and the earlier you start, the better it is!

Why teach Financial Literacy to kids?

Financial literacy among kids and young adults is alarmingly low, leading to poor financial decision-making and potential financial insecurity later in life. Schools and Educational Institutions often do not provide adequate financial literacy education, leaving children and teenagers without the necessary skills to manage their finances and make informed financial decisions.

Kids usually ask, “Am I ever going to use this?” as they are studying trigonometry or learning the Pythagorean Theorem. That question will never be asked about needing to learn how to manage finances properly. Even from a young age, teaching kids how to save money is an important lesson that could shape every part of their future.

If you are a parent, you surely would want your kids to become financially secure as they grow up. Thus, it is crucial for you to take steps early on and teach them about money.

1. Empowerment and Independence

Teaching kids about managing their money would empower them to grow up to be financially independent and confident adults. It will empower them to take control of their financial future and make informed financial choices.

2. Strengthening Family Communication

Money is considered a taboo subject for many. Adults feel embarrassed when there is even a risk of having to talk about income, net worth and other money topics. Discussing money management as a family helps break down these taboos, which in turn enables children to learn from their parents' experiences and mistakes. This transparency fosters a healthy attitude toward money.

3. Fostering Lifelong Habits

The habits we develop in childhood often become ingrained patterns as we grow up. Teaching financial literacy to children allows them to acquire the knowledge and skills to build a financially responsible behaviour throughout each stage of their life.

4. Navigating the Dynamic Financial World

The financial landscape is changing more than ever before. There is an abundance of financial products and services available at fingertips. By teaching kids about these concepts, we equip them with the tools necessary to navigate through the complex dynamic financial world with ease. They become better prepared for the opportunities and challenges that may come along their journey.

5. Understanding the Magic of Compounding

Compounding creates a snowball effect, as the original investments plus the income earned from those investments grow together. Learning about compounding and investing can help kids plan for their educational expenses and they might as well retire before you do!

How can you teach kids about money management?

You might think that kids are too young to learn about net worth and wealth building. However, learning money management would prove to be the best investment for their personal and professional life.

Here are some ways you can teach your kids about money:

1. Talk about Money

Money should not be considered a taboo topic. Create an open and safe environment for your kids. Talk to them about your income, savings, investments and even your retirement plans. The brain of children can absorb new things like a sponge and the best place to learn is home, always.

2. Use a clear jar to save

The Piggy Bank is a good way to save. However, kids are visual creatures and a clear jar would let them see their savings growing. You can give them some extra money to save once they have saved a certain amount. That way they can learn the importance of savings and how interest works as well.

3. Take them shopping

Make a shopping list with your kid and tag them along with you. This will teach them the difference between needs and wants. Learning the importance of prioritizing your expenses is a great way to develop healthy money habits.

4. Set SMART Financial Goals

Financial Goals should be Specific, Measurable, Achievable, Relevant and Time Bound. Encourage your kids to set a SMART goal for the things they want. It could be a toy, snacks or even a school trip. This would teach them the concept of delayed gratification.

5. Enroll them in a financial literacy course

Financial Literacy is not taught in schools. You can choose an online platform specifically created to teach kids finance. The Jr. Investor offers professionally curated Financial Literacy Courses for kids aged 11-18. The classes are fun and engaging to grab the short attention span of kids. You can also teach kids from free resources available online.

Conclusion

Introducing kids to the world of financial literacy is like providing them with a treasure map to navigate the complexities of their financial future. By instilling these valuable lessons from a young age, we are empowering them with the tools they need to make informed decisions, set meaningful goals, and cultivate responsible money habits.