Personal finance literacy is more than just being able to balance a checkbook and compare prices. It also includes skills like long-term vision and strategic planning for a person’s financial future. In the United States, we make a great effort to teach our children how to read and write. But the necessary disciplines of financial literacy seem to have been overlooked day-in and day-out for our future leaders of tomorrow. While as much as we can tailor our focuses to the fundamentals of learning, we as a society need to begin putting precedence on the importance of personal financial literacy. For our children, the concepts of financial literacy and money management are skills our kids can cultivate and leverage throughout their lives. The more we veer away and over look the importance of this concept, the greater the gap our children will have preparing for a better future.
Before we continue on the importance of financial literacy, let’s start by first comprehending the entire concept holistically. Financial literacy is, by definition, the ability to use knowledge and skills to make strong, effective, and informed decisions on money and money management. This covers this from simple concepts such as knowing the difference between earning, spending, and saving to creating and maintaining a bank account. In education today, the system focuses much of its attention on the foundational skills of reading, writing, and mathematics. While I do not disagree that these three are the core skills to a successful academic and professional career, we as a society need to alter our system to better prepare our children for a stronger and fruitful future. To this end, I believe that it is vital that we incorporate financial literacy classes for our children. These classes can help transform our children into strong analytical thinkers and decision makers.
So if financial literacy can help shape our children’s lives, why haven’t parents taken the initiative to teach their kids about money management?
This has been a dark and looming question many parents are forced to ask themselves. While they themselves understand the importance of financial literacy, the topic as an overall open discussion is not that easy. In a way, many adults are intimidated, or worse embarrassed, by their own current financial status to have this open talk with their children. While talking about money may not be the most comfortable discuss with your children, acknowledging its importance can do wonders for your kids. First and foremost, as adults, you have the necessary years and experience of how to make strong, valid, and sound financial decisions. Regardless of your current financial status, your knowledge and understanding of savings and money management can be the perfect way of guiding your child for a better future. Leverage your experiences, and especially your mistakes, to teach your kids what to do with their money. That brings us to our second reason of why you should share your financial knowledge with your kids. At the end of the day, no one is perfect. We have all been in a situation where we have been overzealous with our spending. The main things you can do is to learn from those mistakes. Similar to that situation, utilize those low points at teaching points for your kids. Helping them avoid those mistakes now than later can save them a great deal of trouble when they become adults. Remember, the first person who can impact the course of your child is you. Provide them with the higher-level practices of money management. Introduce and empower them to take control of their financial lives. Once they are able to do that, you’ll know you did your job.
Now, I know what many of you are thinking. What can I teach my five-year-old child about finances? How can an eleven year old have a grasp of investing?
In this day and age, the concept of business has grown dramatically through popular stories like Mark Zuckerberg’s rise to fame to infamous American reality television investment shows like Shark Tank. Because of it’s ever-growing status, helping your child learn the basic practices of money management can start their journey of earning, saving, and managing their funds. For many parents, this begins with a simple allowance. While providing them that concept of hard work ethics is great, make sure you instill the reasons of the amount they are getting and the options they can leverage in the future. In other words, provide your child with a simple standard of budgeting. One way to do this is to show them the 50-20-30 rule where 50% will come to expenses, 20% will go to savings, and 30% will go to leisure spending. To help aid with their overall understand of this process, try introducing them through your own example with a simple example or your actual personal finances at work. The key is for them to see and practice these skills at a young age. If they make any mistakes, let them make it! The more mistakes they make, the more opportunities they can learn for in the future.
Outside of money management, be sure to teach them the concepts of overspending and expenses. While it maybe e a hard concept for them to grasp, showing them the true realities of the world can help put things into better perspective. At the end of the day, our children are our future. If there is any way that we can alleviate any bourdons or misfortunes, now is our time to do so. Benjamin Franklin said it best where, “An investment I knowledge pays the best interest.”