Considering the way we react to our finances, it should be safe to say that we find money concepts quite confusing. Either that or we just do not have the discipline to put what we know into practice. But while financial education is not enough to keep consumers from money problems, you need to understand that it will give you the tools and knowledge to keep it from happening. While the key is really to implement what you have learned from your financial literacy lessons, you still have to acknowledge that you need to have the education first.
We often hear a lot of people say that they made a lot of financial mistakes because of ignorance. They were unaware of the real consequences of their decisions until it was too late. If you can relate to this because of a personal experience, then you should know that boosting your financial education can help improve your case. And while you are at it, you should start educating your kids about it as well.
Truth be told, if you find money concepts confusing, then you can expect that your kids will feel the same way. Not only that, since they are mostly dependent on you financially, you can expect that implementation will be tough for them as well. But while it can be a challenge for parents, that does not mean it is not possible to teach your kids the lessons that they need to learn.
According to a study published on FinancialEducatorsCouncil.org, there are three areas that will impact the way a person handles their finances. One of them is the recognition of the first step. The other two is the motivation to learn and the knowledge of the subject.
Of the three, the recognition of the first step is the most intriguing. You would not think that the first step is important. But if you think about it, if you do not know the first step to take towards making a financial decision, how can you hope to make the right one?
This makes early financial literacy all the more important.
5 money lessons that young children can understand
As a parent, you are expected to give them their first lesson. According to the same study mentioned above, 65% of their respondents believe that the people responsible for the first education of a child is the parents.
There are many money lessons your kid should know after high school but that does not mean you need to wait that long for them to learn. Even at a young age, you can start educating them about money concepts. Good news is, there are certain concepts that you can teach them that they are capable of understanding.
Spend less than what you can afford. The first of the lessons that you can teach your kids involve spending only what they can afford. Just like you should be limited by your income, you should also tell them that their spending is limited by their allowance. If they only get $5 a day, they should only spend $5 or less. Encourage them to spend less so that they have money to put aside in their savings account. If they cannot afford something, they should just say no to the purchase.
Save up for something that you cannot afford. In case your child wants something that their budget cannot afford, teach them that they can always save up for it. Do not buy it for them. We want to give them what they want but in the end, that will not teach them the right money concepts that will make them better financial managers. Encourage them to put aside $1 or something so that they can save up for it. Teach them to put aside a percentage of their allowance – e.g. 10%.
Earn more money if you want to increase your savings. To help them save up for the purchase they want to make, offer to pay them for chores that they usually do not do. For instance, if washing dishes is not part of their chores, ask them to do it for a week and pay them a dollar or something for it. That should give them the value of a hard earned money.
Credit should not be the first option to pay for something. Teach your kids that credit, while can sometimes help, should not be the first option to pay for a purchase that they cannot afford. If they can save up for it, they should just wait before buying the product. In case they see you use your credit card for purchases, you have to explain to them how you pay it off.
Know the needs from the wants. The last of the money concepts that you should teach your kids is the difference between the needs and wants. Have them make a list of what they wish to have. Then, you can identify together what is a want and what is a need. Let them know that buying a toy does not have to be expensive if there is an economical version. Also, teach them that just because a playmate has something, they have to get it too. Tell them that skipping lunch in school is not healthy if that is their way to buy a toy. Instead, teach them how they can spend less but not to skip lunch entirely. Or teach them that they can earn extra money.
These are the money concepts that you can teach your kids. By relating them to things and purchases that they want to have, your kids will be more interested in learning the lessons you are trying to impart to them.
2 reasons why our country’s future will benefit from financially literate kids
While you may think that your efforts to make your kids more financially literate is not important, you need to think again. Just like the value and morals you are imparting to them can affect the future society in general, the same is true for the money concepts you will teach them.
If you think about, most of the deadly financial mistakes are really caused by our ignorance. When you raise your kids to be aware of the consequences of their financial decisions, it will not only benefit their own personal finances, it will also benefit the country’s future.
There are two reasons why the lack of financial literacy of your kids will help everyone in the long run.
Debt will not be as destructive.
According to an article published on TIME.com, the people who do not have a high level of financial literacy is more prone to make the wrong decisions. They borrow more money and they end up accumulating less wealth. But those who are financially literate will be more likely to plan for their retirement and acquire more wealth in the process.
When people become smart about their debts, not only will their personal finance be safe, they will also help the government. You see, people who want to have a low interest loan are usually backed by the government. When they default on the payments, the government will have to shoulder some form of insurance on that loan to keep the lender from losing too much money. If the consumer is financially literate in the first place, the government backed loans will not have to take up too much money in the federal budget. The government will not be wasting time to bail consumers out of a credit pit that is actually a personal mistake.
Financial opportunities will be recognized and grabbed.
Another benefit of learning the vital money concepts in a nationwide level is that people will start to recognize the good financial opportunities that come their way. And since they are knowledgeable about it, they will be more courageous to take a risk. This empowerment will help consumers rise up the income ladder and make something for themselves. They will have the knowledge that will help them pursue their dreams. Again, it will abstain the government from having to support low income households. At the very least, the people they will have to support will be lessened.
Some of the concepts may seem farfetched but it really is hard to see the finish line if you are still at the beginning of the race. You have to just trust that learning the right money concepts is the first step towards a successful financial future.