Importance of Financial Education for children.
Importance of Financial Education for children.
What is financial literacy?
By definition, financial literacy is “the ability to use knowledge and skills to make effective and informed money management decisions.”
So, financial literacy is the confident understanding of concepts such as saving expenses, investing, and debt that leads to an overall sense of financial well-being. To understand and apply different financial skills effectively through experience and knowledge of financial principles and concepts such as planning interest money time value debt management and so on.
Importance of financial literacy:
Financial literacy is important in making sound financial decisions and achieving individual financial goals. Financially literate people not only manage finances more confidently but also have a better chance of handling the difficulties in their finances by understanding how to prevent or manage money-related issues if and when they arise.
Keeping a keen eye on their bank expenses and credit card accounts to be aware of potential fraud. To recover from an unexpected but necessary expenditure, one needs to have an ample amount of savings, from a medical emergency to an unexpected costly car repair, having some savings to fall back on is always important.
Apart from this, financial literacy is important for people to understand their income and expenses, savings in order to manage expenses such as education, vacation, planning their future, repaying or avoiding debts, working towards a secure retirement, protecting from debt, and bankruptcy, and so on.
Why is financial literacy important for students?
It is important to take an active interest in preparing children for the financial world. As parents, we always put our children first when we make financial planning and decisions, as building a financially secure future for our children assume the top priority in our minds affecting the way we spend, save, and invest our money. However, how many of us involve children or teach them how to manage finances, because, without our children’s knowledge, the entire struggle of securing the child’s future would end up futile.
While we all love to talk to our children about culture, history, moral values, characteristics, ethics, the importance of education, and whatnot, we neglect to discuss money matters with our children. This in-exposure to money matters is done consciously or subconsciously by most parents, for example, consciously hiding any financial difficulties they may face in order to keep the child blissfully unaware. One of the biggest possibilities for this is because that is how it has been through generations. It is about time we stop this conscious or subconscious habit of keeping our children out of financial discussions because of the feeling that our children are not old enough.
Though it is not wise to involve children in grave financial problems, we can start involving them in everyday money matters such as household expenses in order to open their minds to the basic financial aspects of everyday life.
At Sherwood High, we believe that students who are taught to manage their finances early on, grow up as adults who are better equipped to live independently, make good financial decisions, learn about debt and can completely avoid it, understand and plan rent, bills, food, transportation, and other expenses as well as maintain proper savings and plan for future investments.
Students who are aware of the navigation in the world of credit and debit save better, which can, in turn, help them pay for huge expenses, as they can set aside money without relying on credit or debt.
Importance of financial literacy in the formative years:
It is said that children as young as three years old start understanding the concept of saving and spending. We are all aware of the importance of teaching children from the time they are young because it is said that any habit, good or bad, is learnt early and is learnt mostly at home. Though we may feel children as young as 3 to 6 years are too small to understand finances, it is at this young age that children learn everything and grasp things more effectively than ever.
Therefore, it is a great time to introduce key financial concepts that children can carry out throughout their lives. By inculcating good money habits in children from a young age, we can help them become financially responsible adults. For example, we can teach children from an early age about the power of saving, so when they get money from relatives or family for a birthday or a holiday, teach them how they can save it in a piggy bank or in a money jar. By doing this, your children can visually see how the money grows, which will keep them excited every time they add money inside their savings. You can use the same opportunity to show them how savings has helped them by setting a goal for that saved money, like buying a specific toy they’ve been asking for with the money that they are saving.
Such early experiences with financial decision-making are the foundation for shaping their preferences, attitudes, and behaviours, even as they grow. According to a study from the University of Cambridge, it was found that money habits in children are formed by the age of seven, so when you start early, their money habits would be set by the time your child reaches the age of seven.
You can involve children in multiple activities that teach them how to save and the importance of patience during this early development stage, and remember to keep the weight comparatively small as children that young have shorter attention spans and they can keep their focus on their goals well if their goals are fairly short-timed.
Learning financial literacy during the transitional years:
This is the age where children transition from just understanding basic concepts such as; belongings, savings, prices, value of money to differentiating between needs and wants, recognizing priorities and rewards, learning about saving plans, and understanding how banks and financial services work.
These are the years when your children understand the relative value of their possession and how to use them responsibly. The age group between 7 to 13 is when they are building their habits and values from what they see, learn, and imbibe from their surroundings, parents, and caregivers. So what your children see you doing is a lot more powerful than what they hear you say during this stage.
The difference between wants and needs should be taught to children for them to build day-to-day habits that shape how they learn about earning, saving, and shopping. For example, you can teach them to weigh decisions and make right choices by asking questions or giving them situations such as; if you buy this with the money you saved, you will not have enough money for something else. This way, you can help them budget their savings and prepare them for a successful financial future.
Teaching children about money and its usage during these years can be really helpful as they can understand how prices reflect the value of goods and can see the importance of money. It is also the right age to teach about sharing, about giving to people who are in need, etc, which will, in turn, help them recognize and appreciate the things in life. You can also explain and teach them how to read what is on the receipts, and how to determine percentages, such as discounts, tax, and tips.
Financial literacy for teenage students:
During this phase, teenagers are greatly focused on the future, so as our children are reaching young adulthood, we are also preparing them to go out into the world independently. In order to help them be successful in their lives, financial or otherwise, we have to make sure we equip them with those life skills that will yield success. Children at this age are becoming more mature and are willing to take up more responsibility than ever before.
This is the age that children learn and understand many new things, such as the positive and negative consequences of spending decisions, the rewards of financial responsibilities, the risks of financial illiteracy, the effects of their spending actions on others, the various factors that influence such decisions. Most teenagers today are confident enough to conduct financial negotiations by themselves, understand factors that affect the purchasing power of money, are able to file complaints about products and services when necessary, understand how to calculate pre-purchase and after purchase costs into specific items, and so on.
It is also the age when children discover ways to live an economically and ecologically responsible lifestyle while learning to manage budgets and debts efficiently and calculate their spending capacity while comparing income to the necessary cost of living.
This is a great time to start a partner saving account for young and older children and explain how they can practice making their own financial choices, without them getting overwhelmed with the responsibility when they use accounts of their own later.
This is also when children are learning to appreciate how families and communities cope or prepare themselves against financial emergencies. You can include children while creating the family budget, asking for their opinions and tips on making the budget will teach them a greater appreciation of what they have, how it is earned, while also being part of the family’s Financial struggles and successes.
We are all striving to ensure our children inherit a prosperous financial future. In order to make sure our children truly appreciate this luxury, we have to teach them the value of money and start grooming our children today. As money is an essential commodity and it is important to master personal money management to achieve and sustain a decent financial lifestyle.
One of the best ways to teach your children about financial health is to lead by example, and teaching children basic financial knowledge from early on, will benefit them, in the long run, to make life’s big financial decisions and have an expert perspective on their finances.