Financial literacy for kids is a fundamental element that impacts their future in various ways. Giving children the right tools to help them succeed is not only something we should strive for but an essential need. Kids represent the future of not only this country but the world. Focusing on finance as a foundation and teaching them financial literacy is crucial for children to understand and develop healthy financial habits.
Financial literacy is the knowledge and skills required to make sound financial decisions. This includes savings, investment, taxes, and credit, to name a few. Money management, budgeting, risk awareness, and avoiding scams are a few examples of skills taught through financial literacy classes.
Financial literacy is an essential tool in creating a strong economy. It teaches kids the importance of money management and has myriad benefits. Creating financial habits early on is a way to instill financial responsibility in kids and teach them about long-term planning. Focusing on the value of money in different aspects, such as saving, borrowing, and spending can go a long way toward teaching children good financial habits.
Financial literacy for kids comes with many benefits. It is an essential tool to learn early on and will also positively affect the future. Here are some of the benefits that financial literacy provides:
Knowing the Value of Money
One of the enormous benefits kids and adults can gain from understanding financial literacy is knowing the value of money. Teaching kids their money's worth will help them make more educated decisions on spending, investing, and saving. It teaches kids the importance of money management and the value of spending wisely.
Financial scams are common and will only continue to grow as technology develops. A finance-literate kid will better understand how scams work and protect themselves from common scams. It benefits kids and adults by keeping them safe from scams and hackers.
Financial literacy for kids will help build their credit by understanding how to generate a positive history. This will help them get approved for a loan or credit card and pay down debt faster. Building credit early on will also give them a head start on paying off their loans and building a good credit score.
The value of financial literacy for kids is illustrated through real-life successes. For instance, a 12-year-old named Johnny decided to try his hand at the stock market. He invested a thousand dollars he received from his grandfather's estate into a low-cost index fund.
With proper guidance, two years later, he had made enough money to buy a new bike and pocketed the rest of the profit, which amounted to $2,400. This story is an excellent example of how kids can make solid financial decisions with the proper guidance.
Statistically, only one-third of kids know about saving for retirement or where their money goes when purchasing. Personal finance isn't yet a primary focus for most youth. Digital media and social media are the most popular ways for kids to interact with finance, and it's expected that these channels will continue to grow.
Personal and business success is heavily impacted by financial literacy. When kids know how to manage their finances, they can make better decisions on how and what to invest in. Investing, insurance, and savings are essential aspects of personal and business success that start with family and friends.
Teaching kids about financial literacy involves several different skills and actions. Focusing on critical areas such as saving, investing, making purchases, paying taxes, and more is essential.
Here is a breakdown of the different aspects of financial literacy:
Investing: Kids should learn how to invest their money safely at an early age to experience the market's value.
Taxes: Kids should understand the value of their work and that they have to pay taxes on their earnings. This will help them work better in the future by knowing how to manage their payments.
Savings: It's important to teach kids about saving because this prepares them for the future and can come in handy for unexpected expenses, such as car repairs or medical bills.
Budgeting: Budgeting is another way kids can learn how to manage their money wisely. By differentiating between needs and wants, kids can understand how to prioritize and use their money to its fullest potential.
There are several ways to teach kids why financial literacy is essential. Here are some ways to teach these principles to your kids:
Financial Games: One way to master critical financial principles is to make it fun with games. For instance, a game like Monopoly allows kids to learn about paying taxes from the gameplay by placing rent on houses. Another popular strategy is to give a round of scrabble letters and numbers to teach kids about saving.
Money Talks: Talking with your child about money matters can be challenging but is essential in helping them become financially literate. It's important to talk about money in an open, honest, and positive way that promotes discussion and learning.
Start a Business: You’re never too young to start a business. One of the most common businesses for kids is a lemonade stand. Through this, kids can learn many aspects of financial literacy.
Part-Time Jobs: While this may seem like a security risk, holding a part-time job at a young age will help kids gain some experience in the workforce. By working part-time jobs throughout their childhood, they'll receive valuable experience and know how to become financially literate.
Focus on Saving: The best way to teach kids about saving is to practice and enjoy it yourself. This can be done by saving for a vacation or a special purchase. Opening a savings account, home bank, or savings bond also teaches kids about saving. The idea is to cover all the bases so they can make intelligent decisions regarding their money.
There is a range of activities and books to educate kids on finances. Here are some resources to help you start teaching your kids about finances:
Financial Literacy Apps: Kids learn best when they are engaged. These financial literacy apps are fun and engaging while providing financial lessons. These apps teach kids how to compare prices, manage their finances, and much more.
Books: Books are another excellent resource for teaching kids about finances. The books typically focus on specific topics such as money and banking, budgeting, credit and debt, insurance, etc. Most books out there engagingly teach financial literacy so kids can learn about important topics throughout the years.
Online Resources: A range of resources can be found online that teach children about money matters and help them gain skills in math and reading. For example, Free Money allows kids to create a budget by tracking their income.
There are specific terms that kids should learn about when it comes to finances. These terms will help them understand money early on and learn critical financial literacy lessons. The following are key terms that kids should know:
Savings: Refers to the amount of money you have saved for a specific purpose, like a new bike.
Investing: This is the process of investing money and earning a return, for example, investing in stocks.
Debt: Refers to the amount of money you owe to someone else. The debt might be from credit cards or other loans.
Budget: A plan that defines how much to spend on specific needs or wants such as food, clothing, and entertainment.
Taxes: Refers to a certain amount of money owed to the government. This money is used for education, roads, and military funding.
Credit: Refers to the ability to borrow money without going into debt. One can use credit cards, loans, mortgages, and other financial instruments to make larger purchases.
Parents can teach financial words for kids through pictorial examples, word associations, and personal stories. Watching television, reading books, and participating in community events can help kids learn financial vocabulary. For instance, a kid can learn the word investing by studying the stock market or about a company through the news.
The importance of financial literacy can't be stressed enough as it can lead to increased motivation in academics, a stronger sense of community and ultimately a sense of belonging.
As a parent or guardian, this makes it imperative that financial literacy is taught to kids. Although this may seem complicated, there are many ways to do so and various strategies that can help kids become financially literate at a young age. Parents should embrace these strategies to improve their finances and help build a brighter future for kids.