Statistics on the sorry state of financial education today show that there is an urgent need for children to learn financial literacy early in life.
According to the Program for International Student Assessment, one in every five 15-year old kids in the United States in 2017 didn’t have basic financial literacy skills and knowledge.
In this article, we show you the reasons and benefits of teaching financial literacy to your kids.
- They simply don’t know enough, or better
You would be surprised by the level of financial literacy ignorance among the young people today. Most of them end up making the wrong financial decisions simply because they don’t know enough to avoid the mistakes.
According to the Jumpstart Coalition for Personal Financial Literacy, a majority of young people today have a very limited understanding of finance and economics. This is why they keep on borrowing and spending with little regard to the interest piling up on their debts. Let your child understand early in life that credit cards are not free money.
- Young people who are financially literate make better decisions
Student loans are taking the same dangerous trend as the subprime mortgage crisis that resulted in the 2007 Great Recession.
Most students are borrowing bigger education loans than they’ll be able to pay back later in life. This is mainly because they lacked proper financial literacy training early in life. They are unaware of billions of dollars available to them in form of grants and scholarships and how to use such opportunities.
Teaching your children financial literacy gives them the right skills and knowledge to make sound financial decisions in life, such as looking for scholarships and grants rather than take huge student loans.
- They learn how money works in the physical world
A child who doesn’t have the right perspective about money often thinks $1000 is the biggest amount of money in the world. It is important to teach your children a realistic perspective of money and how it is required to run every household. Let the child learn about actual figures or percentages needed in the house and how it is earned. This type of financial literacy makes money appear less abstract and more tangible in the eyes of children.
- They acquire saving habits
Financial literacy teaches children the importance of saving part of what you have today for the sake of tomorrow. Children who learn the value of saving have a better chance of succeeding in life than those who don’t.
- They learn to differentiate wants from needs
The best financial decisions are made when you distinguish between wants and needs. Needs are necessities that you must have to live while wants are things that are nice to have but not mandatory.
Financially literate children understand that a family must first spend on necessities such as food, shelter, and essential clothing before buying nice-to-have stuff such as toys and vacations. They learn that clothing is necessary but designer jeans are luxuries that should only be bought after the basic needs have been met.
- Financial literacy shows kids how credit works
Children need to learn how money works so they can make informed financial decisions in the future. They need to learn the value and behavior of money. More importantly, they need to learn how credit works and why they should maintain a good credit score.
Financial literacy teaches kids that credit is not free money but money borrowed from other companies at a cost – known as interest. They know too that credit is not altogether bad but can be a valuable tool. They learn about the other available sources of credit that they can turn to in case of emergencies. For example, in urgent need of cash for a pressing issue, you can always apply for a $1000 loan online and get the cash on the same day.
- They learn the consequences of making financial mistakes
Parents should always strive to help their children avoid making bad money decisions that can have undesirable financial repercussions. Teaching financial literacy to kids helps them avoid future financial problems after they leave home. They learn how to manage their money wisely without making costly mistakes.
- Children learn to be independent early in life
A child with good financial skills grows to become an independent-minded adult later in life. He or she does not fully depend on others for support. Teenagers who have learned to manage their little incomes will not be nagging their parents every now and then for small financial needs. They will have learned to save money for their personal needs.
Those are just but a few reasons why you should ensure that your children learn financial literacy. Got a few more reasons for teaching kids financial literacy? Share with us in the comments below.