Investing in Our Youth: The Financial Literacy Movement

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Before we get into the daunting subject of children’s financial literacy, let’s start by mentioning a disturbing fact here. Would you believe it if I told you that more than 75% of young adults in the United States, between the ages of 18 and 24, accumulate debt by spending more each month than they earn? For this very reason, they rely on credit cards every month to make ends meet. Moreover, since they lack a credit history, they pay higher and higher interest on the resulting debt.

Noticed a trap you made yourself? Quicksand they’re stuck in? Sounds scary, right? Would you like your child to go into debt soon after entering the real world? Of course you wouldn’t. This is where the importance of good financial literacy for children comes in.

What is Financial Literacy for Kids?

To put it simply, the skills and knowledge our children should have to make effective decisions while managing their finances is their financial literacy.

Educating your children from the start to spend money the right way is as essential as teaching good manners and habits. Financial literacy is about saving for specific goals and spending only what is necessary and what you can afford. This will ultimately play a key role in allowing them to live happier and more financially stable lives. Every child will eventually turn 18 and receive a credit score, but many of them won’t know how that score is calculated or what steps to take to maximize that number.

Related: How to Teach Kids Financial Literacy in an Ever-Changing World

Why is financial literacy important for children in the United States?

A few survey results showed me that financial literacy is lacking in most schools in the United States.

Unfortunately, only 21 states required a high school course in personal finance. Who’s going to give kids real-world experience then? If it’s not the school, it must be the parents.

Even the Consumer Financial Protection Bureau (CFPB) says young Americans aren’t ready to manage their finances when they reach adulthood.

And now that people have started to recognize its importance, more than 85% of Americans think K-12 schools should make financial education mandatory because kids aren’t getting the information they need to succeed financially after graduation. high school.

Frankly, without it, I’m afraid even Jeff Bezos has no chance of maintaining, let alone increasing his wealth. Financial education is a process that continues from childhood to adulthood.

Our children need to learn that individual economic assessment and education are important today because:

  • The choices and options are constantly expanding.
  • The world is moving towards comfort and luxury.
  • They should not rely on others for financial help.
  • Money is necessary to live life as they wish.
  • It’s usually not easy to overcome bad financial decisions.
  • There is a big difference between needs and wants.

If you don’t teach your children how to manage their money now, how would you expect them to manage their finances perfectly when they become adults?

If neglected or even ignored, the results are devastating, as I mentioned earlier – a quagmire of debt and stress engulfing your children’s mental, physical and financial well-being for the rest of their lives. .

Financial illiteracy breeds irresponsibility and recklessness

According to a survey, almost half of adults in the United States have monthly expenses above their means. And the average student debt per individual is over $37,000 that goes unpaid.

Why do you think that is?

This is because children who were never properly educated about finances as children end up being bad investors with poor credit scores as adults. Their reckless and irresponsible financial decisions get them into trouble.

Teaching children from an early age the implications of poor financial choices and skills related to financial matters helps them make informed and practically viable decisions later on. They will also be able to efficiently manage and repay their student loans if necessary.

Economic literacy helps avoid questionable financial activities

Children are so prone to making mistakes at a young age. If they don’t have enough knowledge about wise spending, they may get caught up in bad financial activities to earn easy money.

Teaching young people how to function financially by leveraging credit to grow, not as a means of survival, could potentially be life changing.

Financial literacy helps understand student loans and debts

Another fact to show the importance of financial literacy for children in the United States. Over 50% of all students in the United States must obtain student loans and go into debt to complete college. As I mentioned earlier in this article, the average student loan debt exceeded $37,000 in 2020.

A well-informed child will know that sooner or later he will go to university and that obtaining a degree will require a financial sacrifice. They will develop a habit of saving and cutting down on unnecessary expenses from an early age.

This education and knowledge will be crucial in helping them maintain their college loans as they grow up and manage their finances successfully.

Related: Financial education is a must for young people today

Benefits of financial literacy for children

If you think it’s some kind of bandwagon, don’t jump on it yet, find out about the benefits first.

When you teach your child about financial literacy, you are simply ensuring that they are equipped with solid knowledge and greater self-confidence to better live independently.

  1. Learn patience and set a goal

At a young age, kids get excited when you help them start saving a few pennies every once in a while. If you get them to focus on a particular goal, like giving them something they’d like to buy (a toy, a book, or whatever), they’ll know how to set a goal and start saving. It will also teach them the importance of patience and how to save more.

  1. Adopt better financial habits

Children nearing adolescence begin to develop habits. They see their parents and they adopt the values. Educating them about financial literacy at this age will help shape their income, savings and purchasing habits.

They will know the basic difference between needs and wants. They will begin to understand the limits of spending and managing money.

  1. Manage difficult financial situations

Once children reach adulthood, they will be mentally prepared to deal with tough economic situations, like managing their student loans profitably and efficiently when they reach college.

With the help of your teachings, they will have already developed the concept of how the global financial system works and realized the importance of financial literacy.

Ways to impart financial literacy to children

Now that you know why financial literacy is so important for your child, here are some tips to help you break the ice and get to know them to teach them more about it.

1. Start early and start small

Set goals for children at a very young age. Set an allowance and teach them to “save” and “spend” under your supervision. Such tangible goals will spark a sense of interest in them, ultimately making them want to understand how money works.

2. Include their opinion in financial decisions

Children learn more from what you do than from what you say. So help them gain some confidence in financial matters by making them understand your home budgeting. How much you earn, how and where to spend, and how to save will help them understand spending plans.

Ask for their opinions and suggestions in financial decisions. This will build their confidence to make such decisions themselves in the future.

Related: 5 Simple Games to Give Kids a Great Financial Education at Home

3. Ask about income and investments

For older kids, you need to take it up a notch. Talk to them about ways to earn money and how to increase income by investing savings. Teach them the risks of losing invested money, what to avoid and how to make good investment decisions.

Tell them about your own financial experiences and their implications. By teaching young adults about credit, we can change their financial future and prepare them for success in life.

In today’s world, lack of financial stability brings misery and stress and degrades the standard of living. This is where early financial literacy comes into play by helping children make less costly mistakes as adults.

The importance of financial literacy for children in the United States is even more important. Low levels of financial literacy can reduce their chances of success and lead to financial problems later in life.

Teaching kids about money is important, but it doesn’t have to be complicated or scary. With the right financial literacy skills, parents can teach their children how to manage every aspect of their financial life, including their budget and their savings, so they grow into healthy, confident, and successful adults.