Importance of Financial Literacy: Simplify Finance for your Child

Money management does not come naturally. It’s learned through observation and first-hand experience. In order to learn how to manage money, teaching children to save is a crucial first step in getting them acquainted with the importance of financial literacy. It shouldn’t, however, end there. Savings accounts are a sure thing and a simple idea to understand, but unfortunately not enough. Yet, investing their hard-earned money is they can make real money as investments allow them to put in their hard-earned money and make their money work for them even while they are busy with other things. 

This is so because children have a very precious gift: time. The future benefits are larger the earlier your youngster starts investing money. Because money is earned each year from the profits of the preceding year, this is the result of the magic of compounding, which results in the increase of gains through the addition of interest to a principal sum of the deposit. The way parents talk about money and the decisions they make with it send powerful messages to their children. The current generation of teenagers is developing in a world dominated by digital banking, where “tap and go” and online shopping are preferred over using actual, physical money. 

Observing parents make wise decisions, on the other hand, is insufficient. Teens want to be involved and have responsibilities. What financial education lessons can we give young people who only have access to a few digits on a screen for money? How can we introduce them to the importance of financial literacy? Introducing our purposeful money discussions and expectations will prepare your teen for adulthood by equipping them with the experience and knowledge they need to protect their finances and avoid costly mistakes. Read on as we explore the importance of financial literacy, especially for kids and teens.

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What is Financial Literacy?

Financial literacy refers to the ability to comprehend and apply various financial skills, such as personal financial management, budgeting, and investing. Financial literacy is the foundation of your relationship with money, and it is a lifelong learning journey. The earlier you begin, the better off you will be because experience is the key to financial success. Making a budget, knowing how much money to save, choosing advantageous loan conditions, comprehending how credit affects one’s ability to borrow money, understanding taxes and insurances and differentiating between retirement vehicles are all part of this. These abilities enable people to make wiser choices and manage their money more responsibly.

Individuals that are financially literate become self-sufficient, which enables them to achieve financial stability.

Importance of Financial Literacy

The importance of financial literacy cannot be stressed enough. Financial literacy is important because it assists people in becoming self-sufficient and financially stable. This includes the ability to save money, distinguish between wants and needs, manage a budget, pay bills, purchase a home, pay for college, and plan for retirement. Literacy assists them in developing a realistic roadmap that will guide them through their daily lives while making sound financial decisions.

Despite having a population of 1.3 billion people, around 76% of adults have yet to enhance their comprehension of basic financial concepts. India has the potential to be one of the world's most financially educated countries, as 27.6% of its population aged 25-44 continue to participate in the financial inclusion programme through financial education. If children aged 10 to 19 receive comprehensive financial education, this rate might rise by more than 20% over the following two decades. This group accounts for around 21.8% of India's population. Financial capabilities may contribute to overall economic progress and raise the standard of living.

Benefits of Financial Literacy

Financial literacy is defined by five broad principles. While other models may list different key components, the overarching goal of financial literacy is to teach people how to earn, spend, save, borrow, and protect their money. Financial literacy focuses on the capacity to properly manage one’s personal finances, which necessitates experience in making sensible financial decisions including savings, insurance, real estate, college payments, budgeting, retirement, and tax preparation.

• People that are financially literate are better prepared for emergencies. People can prepare for the unpredictable by learning about financial literacy issues like saving or emergency planning. Despite the fact that facing a financial emergency like losing a job or incurring a sizable unforeseen bill is always difficult, one can lessen the impact by practising financial literacy beforehand and being prepared for anything.
• A person’s goals may be more easily attained with financial literacy. People can make plans that set expectations, keep them accountable for their finances, and chart a road for accomplishing goals that first appear unattainable by improving their grasp of how to budget and save money. Even if a person’s ambition cannot be realised right away due to financial constraints, they can always devise a plan to improve their chances.
• Financial literacy inspires confidence. Consider making a life-altering decision without all of the necessary information. Individuals with adequate financial knowledge can approach major life decisions with greater confidence, knowing that they are less likely to be surprised or negatively impacted by unforeseen outcomes.

Decoding the Importance of Financial Literacy for Students

For students, the importance of financial literacy entails having a basic understanding of finances is essential. With any educational plan, you’re constantly building on what you’ve already learned. The same is true for your personal finances. Before you spend money, you must understand how it functions. This requires time and careful application. Too many of us have discovered the importance of money too late in life or what it means to be drowning in debt.

Four Strategies for Improving Children’s Financial Well-being

• Begin early. Evidence suggests that by the age of seven, children’s attitudes toward money are well developed. So, beginning with pre-school, incorporate learning about the world of money into your curriculum.
• Put what you’ve learned into action. It has been demonstrated that combining in-class and experiential learning is the most effective. You could start a school savings bank, encourage student groups to open bank accounts or teach children how to manage a budget.
• Make the most of everyday occurrences. Financial education can be especially effective when combined with a chance for the young person to put it into practice. More in-depth learning about banks and saving, for example, could coincide with students approaching the age of 11, when they can open an account.
• Include parents and caregivers. School-based financial education, like other areas of learning, will be most successful when parents participate as well. Invite parents to participate in hands-on financial learning activities, or encourage students and parents to collaborate on their learning at home.

Methods for Teaching Your Children to Save Money

Educating your children on the value of money from a young age will help them become savers rather than spenders. According to financial experts and studies, most children understand how money works by the age of seven, which is when they typically begin handling their daily allowance at primary school. Furthermore, this age should shape their attitudes toward money. According to the 2015 PISA Survey, 22% of teenagers do not have a solid foundation in basic financial abilities. That is, they thought they lacked the knowledge to accomplish simple things like create a budget for starters. Therefore, how do we ensure that all teenagers have this foundation?

Too often, people regard financial literacy as a separate idea that must be taught in a separate class. While we adore the notion of every kid and adolescent having access to a class like this, we recognise that it is not a reality. Yet, many financial literacy topics can be integrated into existing classes and curriculum.This means that if you want your children to be financially savvy, you must teach them the value of money as soon as they can count. Here are some simple ways that we, as parents, can help our children establish a lifetime savings habit.

• Act as Their Creditor: One of the fundamental principles of saving is to live within your means. If your child has something they want to buy but is impatient to save for it, becoming your child’s creditor can help teach them a valuable lesson about saving.
• Distinguish Wants from Needs: The first step in teaching children the importance of saving is to help them distinguish between wants and needs. Explain that basic needs include food, shelter, clothing, healthcare, and education. Wants include everything from movie tickets and candy to designer sneakers, a bicycle, and the latest smartphone.
• Play Money-related Games: One of the most effective ways to teach a lesson is to do so without your child realising it. Play games with a financial component, such as Monopoly or Life, and assist them in strategizing during the game. Under the guise of play, this will teach your child the value of budgeting and planning for the future.
• Create A Dream List With Your Child: Creating a list of priorities is an important part of financial literacy. We can’t have everything we want all at once, but if we plan ahead, we can achieve our goals over time. 
• Provide a Location for Saving: When your children decide to save money, they’ll need a safe place to keep it. This could be a piggy bank for younger children, but if they’re a little older, you might want to set up their own savings account at a bank or even get a kid-friendly debit card.
• Make Room for Errors: Allowing children to learn from their mistakes is an important part of empowering them with financial responsibility. It’s tempting to intervene and steer children away from potentially costly mistakes, but it might be better to use that mistake as a teachable moment.

The ability to manage your finances better makes financial literacy a crucial life skill to possess. From the beginning of school, financial planning, budget management, and saving should be taught. Learning about it, though, can never be too late. Understanding its elements can help one become more financially literate. Any person, regardless of age, can start their investment adventure. Yet there are advantages to beginning early.

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