The Covid-19 pandemic really highlighted how financially troubled our society is. Debt levels are extremely high, bankruptcies are commonplace and many families are living paycheque to paycheque. Today’s adults are suffering and may be setting the next generation up for trouble, as well.
Tackling the financial literacy crisis, begins in the home. Parents are reluctant to discuss finances with their children. As a result, children today have no concept of money or how it works. Despite this reluctance, it’s important for parents to start the money conversation at home with their children.
Yes, certain financial concepts cannot be taught before a certain age, but as children grow up, they will learn eventually. Money is an essential commodity in today’s world, and it is important to master the concept of money management from the young years to achieve financial literacy.
Ages 4 to 5
You need money to buy things. You can talk to them about the different forms of money we use — coins, denomination of notes, and credit and debit cards. Have them consider all the things that cost money — toys, groceries, etc. Also explain that a lot of things that have value are free. Spending time playing with a friend or cousin is really fun and doesn’t cost any money.
Money is earned by working. Talk about your job or profession and why you chose it. Use examples of jobs they recognize like teachers, doctors. policemen etc.
Let them know that they might have to wait to buy something they want. Delayed gratification is a hard concept even for a lot of adults to understand. The sooner children accept this fact, the better. Have them identify an item they’d like to buy. Maybe it is a toy or a dress. Talk about how much it costs and help them count out the money required to purchase it.
Ages 6 to 10
There is a difference between what you want and what you need. Talk about all the things we need to buy with our money — clothing, food, a home to live in. Then make a list of things we like to have, but don’t necessarily need them.
Give them some money with the task of choosing which snacks to buy for the week. Do you want to spend money on something, or can you buy it by paying instalments or buy it from a place where it costs lesser? Once it is spent, it is gone.
It is good to compare prices. Explain there are lots of ways to buy things. You can physically go into a store to buy it, look for it online (perhaps via the magical land of Amazon) or on discount sales.
Ages 11 to 13
The idea of saving gifted money. Have them set goals for things they’d like to save up for? Using a credit card is like a loan. Most likely, they watch you use cards all the time and might have questions about it. They need to understand this is actually a financial transaction taking place and money is, indeed, going out.
Ages 14 to 18
Understand the usage of credit cards. They need to understand if you don’t pay the bill in full every month, interest can work against you and you’ll end up paying more for the item than it actually costs.
You must pay taxes on your income. This is an important concept to understand well before they leave school.
The importance of having an emergency fund. Provide examples of why it is important to always keep some cash in savings. You can cite examples of emergencies you’ve experienced — appliances breaking, losing a job and medical issues and how having a savings cushion helped you get through these times. Or alternatively, talk about how you regretted not having an emergency fund when you needed it.
Investing concepts, paying insurance or individual retirement plans and talking about these basic investment concepts so they can get some hands-on experience in watching their money grow. Knowing how and when to start teaching to students about money and identifying what money skills they need can be tricky, but experts say it is crucial for their future.
Children who grow up with a good education around money with healthy habits will grow into adults who are less likely get stuck in a dangerous debt cycle, are better prepared for emergencies and have the surplus to give to charity and support their communities.
This is so because children have a very precious gift: time. The future benefits are larger the earlier your youngster starts investing money the better. Because money is earned each year from the profits of the preceding year, this is the result of the magic of compounding, which results in the increase of gains through the addition of interest to a principal sum of the deposit. The way parents talk about money and the decisions they make with it, send powerful messages to their children. The current generation of teenagers is developing in a world dominated by digital banking, where “tap and go” and online shopping are preferred over using actual, physical money.
Make the abstract real. Confucius once said, “I hear and I forget. I see and I remember. I do and I understand.” And once you’ve piqued a child’s interest in topics as complex as money and investing, it could be helpful for them to get hands-on. Consider sharing with them some of the companies, mutual funds, or exchange-traded funds you have invested in. What lessons have you learned? What do you wish you knew when you were younger? Explain why.
The goal is to engage children in financial literacy at all stages of their childhood so they are better prepared to manage their finances as adults and make better decisions for themselves and their future families.
Parents ensure to keep enough money for their children; however, they fail to understand that one more step must be added in their future planning for their students. They must inculcate the basics of finance in young ones before they go out into the world independently because doing so will make them more responsible and make their life far more convenient!