What is Financial Literacy?
According to Investopedia, financial literacy is ‘the confluence of financial, credit, and debt management knowledge that is necessary to make financially responsible decisions.’
When you’re financially literate, you understand how to manage your money and allocate your income accordingly, often in the form of savings, to avoid financial debt. You’ll have the knowledge to make educated decisions on your finances and eventually be able to evaluate investment opportunities.
Financial Literacy for Kids
When children grow up learning healthy financial practices from an early age, they make better financial decisions as adults. One of the first things kids can learn at a young age is the difference between needs and wants. When they learn early to differentiate between the two, it can help them avoid unnecessary expenses as adults.
Try This at Home
Kids also need to learn that money is a limited resource. You can give them a list and some money and have them pick out and pay for everything on the list. Don’t help them if they go over, they will have to put something back or choose less expensive options to not go over their budget. You can also play games at home that teach kids about money, including Monopoly or The Game of Life. One of the most important things you can do is talk to your kids about money. Teach them about the value of money, don’t be afraid to talk about money as a family and they won’t be afraid to ask questions.
Any Skill is Easier to Learn at a Young Age
If we start teaching kids about money early in life, just like we teach them everything else, they will be more likely to retain the information. Learning things at an early age is less intimidating, whether it be riding a bike or managing money, starting earlier can help make it less scary.
It is never too early to talk about saving and planning for the future. Kids usually get money from doing chores, good grades, and gifts. Parents can make jars to create a better visual for kids to save money. They can have a need jar and a want jar – parents can talk to them about what percentage should go in each jar. For a need, younger kids may be saving for something they need to buy for school, while older kids could be saving for their cell phone bill. For a want, younger kids may be saving for a new toy while older kids could be saving for the newest electronic gadget or game they want.
Make Financial Literacy Another Part of Your Child’s Education
Every family may start somewhere different, but the important thing is just to start! Financial literacy may look different for each family and each child, but if you make it a part of their education, make it fun and exciting, you can easily teach this important life lesson.