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Before we get to the intimidating topic of financial literacy for children, let’s start by mentioning a troubling fact here. Would you believe it if I tell you that more than 75% of young adults in the United States, aged 18 to 24, go into debt by spending more each month than they earn? For this very reason, they rely on credit cards every month to make ends meet. Plus, since they don’t have a credit history, they pay increasingly higher interest on the resulting debt.
Notice a trap you’ve created for yourself here? Quicksand they’re stuck in? Sounds scary, right? Would you someday want your child to go into debt quickly after entering the real world? Of course you wouldn’t. This is where the importance of good financial literacy for children comes in.
What is financial literacy for children?
Simply put, the skills and knowledge our children should have to make effective decisions while managing their finances constitute their financial literacy.
Educating your children from the start to spend money the right way is as essential as teaching good manners and habits. Financial literacy is about saving for specific goals and spending only on what is needed and what you can afford. This will ultimately play a key role in enabling them to lead happier and more financially stable lives. Every child will eventually turn 18 and be given a credit score, but many of them won’t know how that score is calculated, or what steps to take to maximize that number.
Related: How to Teach Financial Literacy to Children in a Changing World
Why is financial literacy important for children in the United States?
Some survey results have shown me that financial literacy is lacking in most schools in the United States.
Unfortunately, only 21 states required a high school course in personal finance education. Who is going to give the kids a real world experience then? If it is not the school, it must be the parents.
Even the Consumer Financial Protection Bureau (CFPB) says young Americans aren’t ready to manage their finances when they reach adulthood.
And now that people have started to recognize its importance, over 85% of Americans think K-12 schools should make financial education compulsory because kids don’t get the information they need to be financially successful after high school.
Frankly, without it I’m afraid even Jeff Bezos has no chance of maintaining, let alone increasing his wealth. Financial education is a process that continues from childhood to adulthood.
We need to teach our children that individual economic valuation and education are important today because:
- The choices and options are constantly expanding.
- The world is moving towards comfort and luxury.
- They should not rely on others for financial assistance.
- Money is needed to live life the way they want.
- Bad financial decisions are usually not easy to overcome.
- There is a clear difference between needs and wants.
If you don’t teach your kids how to manage their money right now, how well would you like them to manage their finances when they grow up?
When neglected or even ignorant, the results are devastating, as I mentioned earlier – a swamp of debt and stress engulfing the mental, physical and financial well-being of your children for the rest of their lives. .
Financial illiteracy breeds irresponsibility and recklessness
According to a investigation, nearly half of adults in the United States have monthly expenses that are beyond their means. And the average student loan debt per person is over $ 37,000 that goes unpaid.
Why do you think it is?
This is because kids who were never properly educated about finances as a child end up being bad investors with bad credit scores as adults. Their reckless and irresponsible financial decisions get them in trouble.
Teaching children from an early age about the implications of poor financial choices and financial skills helps them make informed and virtually viable decisions later. They will also be able to effectively manage and repay their student loans when needed.
Economic Literacy Helps Avoid Shady Financial Activities
Children are so prone to making mistakes at a young age. If they don’t have enough knowledge about wise spending, they can get drawn into bad financial activities to make money easily.
Teaching young people to function financially by leveraging credit for growth, and not as a means of survival, could potentially be life-changing.
Financial literacy helps understand student loans and debt
Another fact to show the importance of financial literacy for children in the United States. Over 50% of all students in the United States need to get student loans and take on debt to complete college. As I mentioned earlier in this article, the average student loan debt crossed $ 37,000 in 2020.
A well-informed child will know that he will go to college sooner or later, and getting a degree will require a financial sacrifice. They will develop a habit of saving money and cutting unnecessary expenses from a young age.
This education and knowledge will be crucial in helping them maintain their college loans as they grow up and manage their finances successfully.
Related: Financial education is a must for today’s youth
Benefits of Financial Literacy for Children
If you think it’s some sort of a bandwagon, don’t jump on it just yet, learn about the benefits first.
When you teach your child about financial literacy, you are just making sure that they have strong knowledge and more confidence to live better independently.
- Learn patience and set a goal
At a young age, kids get excited when you help them start saving pennies every now and then. If you get them to focus on a particular goal, like giving them something they’d like to buy (a toy, book, or whatever), they’ll know how to set a goal and start saving. It will also teach them the importance of patience and how to save more.
- Build better financial habits
Children approaching adolescence begin to develop habits. They see their parents and they embrace the values. Introducing them to financial literacy at this age will help them shape their earning, saving and buying habits.
They will know the basic difference between needs and wants. They will begin to understand the limits of spending and money management.
- Manage difficult financial situations
Once children reach adulthood, they will be mentally prepared to face tough economic times, such as managing their student loans profitably and efficiently when they get to college.
With the help of your teachings, they will have already developed the concept of how the global financial system works and realized the importance of financial literacy.
Ways to Teach Financial Literacy to Children
Now that you know why financial literacy is so important to your child, here are some tips to help you break the ice and get comfortable with learning more about it.
1. Start early and start small
Set goals for children from an early age. Set an allowance and teach them to âsaveâ and âspendâ under your supervision. Such tangible goals will spark a sense of interest in them, ultimately making them want to understand how money works.
2. Include their opinion in financial decisions
Children learn more from what you do than from what you say. So help them gain some confidence in financial matters by making them understand budgeting for your home. How much you earn, how and where to spend, and how to save, will help them understand spending plans.
Ask them for their opinions and suggestions in financial decisions. This will strengthen their confidence to make such decisions for themselves in the future.
Related: 5 Simple Games To Give Kids A Great Financial Education At Home
3. Learn about income and investing
For the older ones, you have to go up a notch. Talk to them about ways to make money and increase income by investing the savings. Teach them the chances of losing investment money, what to avoid, and how to make good investment decisions.
Talk to them about your own financial experiences and their implications. By teaching young adults about credit, we can change their financial futures and prepare them for success in life.
In today’s world, the lack of financial stability brings misery and stress and lowers the standard of living. This is where financial literacy at a young age plays its role in helping children make less costly mistakes as adults.
Even more important is the importance of financial literacy for children in the United States. Low levels of financial literacy can reduce their chances of success and can lead to problems with their finances later in life.
Teaching kids about money is important, but it doesn’t have to be complicated or scary. With the right financial literacy skills, parents can teach their children how to manage every aspect of their financial life, including their budget and savings, so that they grow into healthy, confident, and successful adults.