Financial Literacy for Families: Why Teach Your Kids About Money
Discover the secret to a prosperous life with our financial literacy for families post. Learn why you need to teach kids about money today!
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Why Teach Kids the Basics of Money Management Skills
You just got laid off and are scrambling to get a new job.
There’s never a good time for these sorts of things, but with your six-year-old about to celebrate her seventh birthday, the timing is particularly worse. Should you tell her you can’t afford that big birthday party she’s been dreaming of? Can you afford not to tell her?
It’s a parent’s dilemma – figuring out how much information and how much to reveal to safeguard the kids.
While we’re all different, one thing stands out; parents need to start teaching the basics of financial literacy early in life because good financial habits are essential to long-term success.
Improving financial literacy for families should be at the forefront of every discussion because money is all around us.
You might even say that it governs our very lives.
Countries, for example, have gone to war for financial gain. People have been corrupted. Lives have been destroyed.
Of course, lives have also been improved because of financial gain. People have been uplifted. Countries have brokered peace treaties.
Because money matters so much, it’s important that all of us, including kids, have basic financial skills. It’s a crucial part of financial self-care.
This post will go over what it means to be financially savvy and why, as responsible adults, we have a duty to teach kids of all ages the financial concepts they need to learn so they can cultivate a healthy relationship with money.
What is Financial Literacy?
Financial literacy, according to Investopedia, refers to someone’s “ability to understand and effectively apply various financial skills, including personal financial management, budgeting, and investing. Financial literacy helps individuals become self-sufficient so that they can achieve financial stability.“
In other words, you’re financially literate when you can make financially sound decisions based on your own understanding of how to manage your personal finance, debt, and credit.
If you don’t know anything about finances in general – the difference between a debit and a credit – or your own finances in particular, then you’re financial illiterate.
Sounds harsh, doesn’t it?
That’s because the impact of financially illiteracy is harsh. A global financial literacy test conducted by the World Bank, Gallup, and George Washington University found that just one-third of the world’s population is financially literate.
Even worse, financial literacy is declining in some countries. In the US, for example, only 57% of adults is considered financially literate.
In the UK, the percentage is slightly higher at 67%. But it’s small consolation, given that around 47% of the entire UK population (or 24.9 million people) is financially vulnerable.
This is incredibly worrying. Money management skills are essential to securing a stable future and surviving life shocks like sudden job loss. In fact, cultivating healthy money habits has tremendous benefits. Check out the next section to see what they are!
The Benefits of Teaching Financial Literacy for Kids
Maybe money can’t buy happiness. But it certainly can help you buy what you need to be happy: good food, a decent home, sturdy clothes, etc.
Yes, I said it: money is a key ingredient to happiness!
In this section, we’ll take a look at exactly how teaching children about financial skills and responsibilities in an age-appropriate way can help them eventually create a stable and secure financial future.
Help Your Kids Enjoy Financial Stability
Helping kids learn the basics of managing their own money will allow you and your children to become financially stable, able to weather the ups and downs of various economies. You can’t teach what you don’t know or what you don’t practice.
As you develop your own financial skills, you’ll be able to teach your kids the value of delayed gratification, budgeting and saving, setting up an emergency fund, setting savings goals, using credit or debit cards, managing debt, and growing wealth.
You’ll make decisions that are financially sound – whether the economy at large is going through a recession or a boom.
Deciding if something is a want or a need will be easy. You’ll be able to prioritize and decide which of your needs and wants come first and you’ll have a plan that will help you get them.
Because you no longer live paycheck to paycheck, you won’t have to be mired in bad debt or experience debt stress ever again.
Help Children Attain Peace of Mind
Too many people look at the future with anxiety rather than anticipation not because they don’t know what’s going to happen, but because they don’t have a safety net in place.
If you’re barely scraping by today and you don’t have any savings because you just don’t make enough to save money, then you know that if you suddenly lose your job, you have to rely on other people or government benefits just to survive. Bad enough that you may have to go through it yourself, but what if you have children?
Suddenly, the scenario is ten times worse.
No wonder many relationships break down when money becomes a problem.
The solution is to learn how to manage money – and helping your family learn how to manage their money too. This is especially important if, like me, you come from a poor country that doesn’t have many government programs set up to help people who are struggling to make ends meet.
Getting financially literate yourself, and then passing this literacy on to even the youngest of your children is a powerful way to cultivate inner peace.
Instill Contentment by Teaching Kids Relevant Money Skills
Like happiness, contentment can’t be bought. But it’s certainly easier to be content with life when you can buy a home to live in, food to eat, water to drink, and clothes to wear. It’s easier to find contentment when you know you can provide your children with a better life.
Somehow, it’s different when you have no one to worry about but yourself.
Somehow, sometimes, we can pretend that everything is okay, that we’re content with our life. But throw in our loved ones into the mix and these things change. For example, many of us are happy enough to buy a microwavable dinner for ourselves. But when you have a child, this is suddenly not enough. We want to be able to buy better food. Maybe something organic and healthy, like the experts say.
This isn’t surprising. We want something better for our loved ones than a life of fear, enslaved by insufficient disposable income.
Teaching ourselves and our children the ability to make sound financial decisions can help us get to a place where we do have sufficient disposable income to provide the ones we love with a life that’s better than what we experienced growing up.
The trick, of course, is to learn to be happy with what we have while we pursue all that we want.
It’s never too early to start. It’s never too late either!
Nurture Self-Confidence in Yourself and Your Kids
Knowing about money and practicing financial management will imbue you and your family with self-confidence because money will no longer be an enigma to you.
Most people are afraid of talking about money, not simply because it’s taboo, but also because we don’t know what the heck we’re talking about.
Conversations about money usually involve at least two people complaining about the lack of it – or disparaging those who have it.
Rarely do we actually talk about the tactics to use in order to gain more. Even rarer do we admit that we do need more.
I find it really fascinating that we don’t go around asking financially successful people for advice.
We just complain and then awkwardly change the subject.
However, if we had financial education, we wouldn’t need to do these things because we’d have a sound financial plan that reflects and protects our interests.
Learn What You Need to Manage Money & Teach Your Children the Skills They Need to Do the Same
As you can see, money can either lift you or drown you, depending on whether you have it or not. And that’s a bit worrying, isn’t it, if you don’t happen to have the information you require?
I used to get really worried about what the future may bring. And I basically just crossed my fingers and hoped life would treat me fairly.
But that’s not how life works. We don’t get everything we want just because we’re good people.
So, don’t be like me. Don’t wait until you find yourself in the middle of the ocean before you learn how to swim.
Take this advice if you will take nothing else from this post – please invest in your own financial literacy and invest in your children’s financial education.
Keep learning.
Keep growing.
Keep reading.
Do what you need to so that you can roll with life’s punches with ease and confidence – no matter how often they come.
Start now with these financial literacy resources for yourself and your kids:
- Learn about the economy, how it works and how to make it work for you
- Design the career of your dreams, which allows you to live your passion, values, and skills
- Learn the basics or dive deep into crypto from experts in the field
- Make smarter investments with insight from investors who’ve been trusted with more than $150 billion
For more resources to help you give your kids the financial education that they need, read our post, How To Improve Financial Literacy: Financial Resources For Toddlers (And Their Parents)!
Frequently Asked Questions
For more information on the importance of families’ financial education, check out our Q&As below:
In addition to the benefits mentioned above, how else does financial literacy help families?
Here are some more benefits of financial literacy for families:
- Money skills can lift families out of poverty and set them up for success.
- Kids who grow up with a good financial education are more empowered; they’re less likely to get stuck in debt cycles, are better prepared for emergencies, and have the surplus to give to charity and support their communities.
- Nurturing financial literacy skills early in life helps kids develop into responsible adults who have a healthy relationship with money.
- Financial values can be taught at a young age to help children appreciate the family wealth and help shape proper attitudes toward it.
- People who are financially literate are generally less vulnerable to financial fraud.
- As parents become better at managing their money, they can improve poor financial habits.
Why should financial literacy be taught at home?
When it comes to money, education should begin at home so we can:
- Give children a head start
- Instill healthy habits
- Ensure that our children start applying crucial skills to everyday life as early as possible
- Help them improve their financial decision-making
- Close wealth gaps
- Increase opportunities for future homeowners, business leaders, and engaged citizens
- Set the foundation for personal responsibility and entrepreneurship
What are the 5 principles of financial literacy?
The five commonly cited principles of financial literacy are:
- Earn: Understanding how to earn money and manage income effectively.
- Save and invest: Knowing how to save money and invest it wisely to achieve financial goals.
- Protect: Understanding how to protect assets and manage risk through insurance and other means.
- Spend: Knowing how to manage spending and make wise purchasing decisions.
- Borrow: Understanding how to manage debt and borrow money responsibly.
