Financial literacy is the knowledge about money that can help you make the right financial decisions every time.
How to improve financial literacy is something that I think should be at the forefront of every discussion – personal, famillial or communal.
I don’t think it’s the most important conversation to have, what with sustainability, peace and discrimination all vying for first place.
But I do believe that a lot of these issues can be mitigated by having an honest conversation about money – a topic so taboo that many of us cringe when we’re forced to talk about it.
And I know this from personal experience.
I bet you’re familiar with the scenario too.
If someone asks how much you earn, what’s your initial reaction?
Long pause, right?
And then you scramble to come up with an answer.
Unless the other person is very close to you (and sometimes because that person is very close to you), you hesitate to give an exact amount.
Why is that?
If someone asks you what your economic plan is for the future, you probably have the same reaction – major pause, cringe, scramble for an answer.
Interesting, isn’t it?
Money is all around us.
You might even say that it governs our very lives.
In fact, countries have gone to war for this very reason – financial gain.
People have been corrupted.
Lives have been destroyed.
At the same time, lives have been irrevocably changed for the better – also because of financial gain.
People have been uplifted.
Countries have brokered peace treaties.
If money, profit or whatever you want to call it is so life-changing, surely we’d all be better served talking about it?
Surely, we should all make sure that each member of this planet is financially literate?
And finally, shouldn’t we makes sure that each of us knows how to improve financial literacy – not only ours but also our families’?
What financial literacy means
What is financial literacy anyway?
What exactly does financial literacy mean?
Financial literacy, according to Investopedia, simply refers to a person’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 can call yourself financially literate when you can make financially sound decisions based on your own understanding of how to manage your personal finance, debt and credit.
Another way of putting it is that if you don’t know anything about your own finances in particular (for example, what to do with the money you earn or how to avoid debt) or just finances in general (like the difference between a debit and a credit), then you are financial illiterate.
Sounds a bit harsh, doesn’t it?
But sometimes truth is a bitter pill to swallow.
And the truth is that financial literacy is declining.
In the US, for example, only 57% of the population is considered financially literate.
In the UK. the percentage is slightly higher at 67%.
But it’s small consolation, given that 50% of the entire UK population is considered financially vulnerable.
Why is this particularly worrying?
Well, let’s just say that the benefits of financial literacy are huge, which means that the lack of it can be especially detrimental.
And again, I know this from experience.
How financial literacy benefits
So, what are these huge financial literacy benefits we’re talking about?
Well, maybe money can’t buy happiness but it certainly can buy (at least) four things that are just as important.
Let’s take a look at exactly how financial literacy benefits you, both mentally and materially.
Financial education and literacy will allow you to become financially stable, able to weather the ups and downs of various economies.
You’ll make good financial decisions 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 prioritise and decide which of your needs and wants come first and you’ll have a plan that will help you get them.
No longer will you be living paycheck to paycheck.
You won’t worry about being mired in bad debt ever again.
Doesn’t that sound good?
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 (although that does play a part) but because they don’t have a safety net in place.
If you’re barely scraping by today and you haven’t got any savings, then you know that if you lose your job seven months from now, you won’t have enough money to survive without relying on other people or benefits.
And we all know those two aren’t particularly reliable in the first place.
That thought is incredibly depressing and stressful.
No wonder many relationships break down when money becomes a problem.
So, for your peace of mind, get financially literate.
Hand in hand with peace of mind is contentment.
Yes, money can’t buy you this all elusive state but it sure can help make it easier.
Unless you’re as enlightened as the Buddha, chances are, you’ll find it extremely hard to be content with your life when your stomach is grumbling for food – and so are your children’s.
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 to the mix and these things change.
Suddenly, being able to eat three times a day isn’t enough – if it’s literally just bread and butter each time – because we haven’t got enough money to buy anything else.
We want something better for our loved ones than living a life of fear, enslaved by our own lack of disposable income.
And whilst humans are forever on a quest for something better and greater than ourselves, financial literacy can help ensure that we’re always starting at a good place.
Because as someone who knows what it’s like to contend with a big, seemingly impossible-to-pay debt, the feeling of being trapped can grow so strong that you eventually end up focusing all of your energy on thoughts of escape.
I don’t recommend that life to anyone but especially to people who have dependents.
It’s the fastest way to mental health issues and relationship breakdowns.
Financial literacy will also imbue you 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.
In fact, I find it really fascinating that we don’t go around asking people who are financially successful 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.
How can financial literacy impact my future?
So, if you’ve ever asked the question, “How can financial literacy impact my future?”, you now have the answer.
It can either lift you or bury 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?
As someone who has a tendency to get anxious about things I know I don’t have a handle on, I used to get really worried about what might happen in the future.
Side Note: Yes, I know, that’s totally against the Laws of Attraction and Manifestation. Seriously, if you’re a negative person – and most people are – you need to work on that. You need to learn how to expect positive things instead of fearing for the future. It’s hard work. I know because I’ve been there but as I’ve learned and as Earl Shoaff said, “Nothing happens to us. Everything happens through us.”
Unfortunately, if your means of handling the issue is to stick your head in the sand and pretend you don’t have a financial literacy problem (hands up if you’re like me!), then you’re gonna be in for a rude awakening when life throws you a doozy of a spanner.
Don’t be like me.
Don’t wait until you find yourself in the middle of the ocean before you learn how to swim.
It is not a predicament I would ever wish on anyone, so take this advice if you will take nothing else: please invest in your own financial literacy.
Do what you can so that you can roll with life’s punches – and there will be many – with ease and confidence.
Financial resources for toddlers (and their parents)
“Change doesn’t start from inspiration,” Jim Rohn was fond of saying, “Change starts from education.“
This post is an ever-expanding resource to help you get the education you require so you can start improving your financial literacy.
As you probably know by now, I believe in the importance of starting early with financial education. And by early, I actually mean as soon as your kids start learning how to count.
Counting is the foundation of all financial and numeracy skills so you can’t really do anything before that.
As soon as your child starts going 1-2-3, you can start.
Side Note: For more ideas on how best to give your toddler the financial education she requires, please check out our post: Penny For Your Thoughts: The Ultimate Guide To The Best Financial Education For Toddlers.
Financial literacy videos
This list of free financial literacy videos (all available on YouTube) is by no means comprehensive and you obviously won’t learn everything you need to learn about dealing with money from them.
But they’re a heck of a good start.
These are the videos that opened my eyes and completely changed the way I handle my finances.
I really wish I’d learned them 20 years ago.
I’d have been leading a completely different life.
What to do with the dollar
In less than ten minutes, you’ll discover Jim Rohn’s famous magic formula for financial success.
It’s designed originally for kids but is actually an eye-opener for many adults too.
In fact, I didn’t even know about this formula until recently.
And I’m over 30 years old!
This is the first rule you need to learn and you need to learn it early so make sure that you watch this video.
Robert Kiyosaki | Financial Literacy in Under 4 Minutes
Robert Kiyosaki of Rich Dad, Poor Dad talks about his world-famous quadrant, the one that differentiates the employee, the self-employed, the business owner and the investor.
And you’ll learn, in these short minutes, where Rich Dad is in the quadrant, where Poor Dad is in the quadrant and why you need to move from the latte to the former.
Another thing that is very different in the way Robert Kiyosaki explains things is how he talks about assets and liabilities.
It’s not what you think.
So, if you’re one of those people who’ve not read his book, you’ve got to change that and read his book now.
Right after you watch this video.
7 Financial skills I wished I would have learned in high school
The dire statistics that are mentioned in this video are American but you can use them to guesstimate how the state of financial education is in other countries.
It’s not as hard as you probably imagine.
The numbers themselves may be different but the ratio is pretty much the same.
And they all lead to the same conclusion: people need to learn about finances.
We need financial education and we needed them yesterday.
This video gives you the 7 basic financial skills that you should’ve learned in high school.
So, watch this and learn.
The 10 rules of money
This video contains the ten rules everyone needs to learn in order to financially succeed in life.
Another really good video for when you’re just starting out in your financial education journey.
Jeremy’s take on taxes, emergency funds and personal debt really hit home and we’re now making changes in our lives to ensure that we maximise our financial benefits from these things.
This is an excellent springboard to greater financial awareness.
Financial books for parents
After graduating with two degrees that required me to do a great deal of research, I always encourage parents – especially new parents – to give a lot of attention to the kind of parents they’d like to be and to start reading up on it (AKA read up on it).
I find it supremely interesting that many of us study contracts minutely, going over them several times, before signing and yet we don’t even bother reading about the pros and cons of breastfeeding and formula-feeding, to pick a volatile example.
Regardless of the reason, I think it’s a good idea to stay informed.
Things have changed since those days when children were seen and not heard or when children expressing their own individual opinions were automatically considered disrespectful.
This is why before we started our son’s financial education, I read books.
A lot of them.
And I still read.
Actually, I now read the books I wish I’d read when I was a lot younger.
I sometimes sigh over the lost time but hey, know better do better, right?
The following list covers books that I personally think every parent should read at least once whilst their children are growing up.
Side Note: If you have zero knowledge but are interested in giving yourself a financial education, start with the book The Richest Man in Babylon and go from there.
I honestly believe that it would be life-changing for both parent and child.
The Wall Street Journal Financial Guidebook for New Parents
One of the many reasons why I started a family late was finances.
I’m not sure how they did it in the old days when people could have children without thinking about their money situation (and yes, I’ve had parents in older generations telling me that the cost of children never factored into their decision-making process).
Now, it’s all but impossible to raise a child right unless you know where you’re getting your next penny and both parents need to be working full-time to boot.
In fact, I have a few friends who’ve decided that they couldn’t afford the cost of a child and so didn’t want to start a family!
Now, if you’re a parent or you want to be and you’re beginning to feel the pressure to become financially stable (don’t we all, though?), this book is the one you need to read.
It contains, among others, the following information:
- ✦ Safeguard your child’s well-being with wills, trusts, and life insurance
- ✦ Best weigh your child-care options and decide whether to go back to work
- ✦ Save on taxes with child-friendly tax credits and deductions plus tax-advantaged benefits at work
- ✦ Manage your family’s health-care costs
- ✦ Save for long-term costs by setting up a college fund
- ✦ Spend smart and save money at every stage of your child’s development
- ✦ Continue to contribute to your own retirement savings
In other words, It gives you all the information you could ever need to meet your child’s expenses whilst at the same time making sure that you don’t bankrupt yourself doing so.
Smart Money Smart Kids: Raising the Next Generation to Win with Money
If you respond more to personal stories rather than dry, factual text, this is the book for you.
It’s even more effective because it’s presented by a father and his daughter.
Now, why should you want to listen to this particular duo?
Because the father happens to be Dave Ramsey, America’s foremost expert on money and business.
The daughter is Rachel Cruze, #1 New York Times best-selling author, who helps people learn the proper ways to handle money and stay out of debt.
Together, they tackle the important money lessons you need to be teaching your kids:
- ✦ Where money comes from
- ✦ The value of hard work
- ✦ How to save, spend, and give
- ✦ Debt, and how to avoid it
- ✦ Paying cash for college
- ✦ Living responsibly
The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money
Kids who are spoiled and entitled – doesn’t that sound like every parent’s nightmare?
In fact, we all try our best to make sure that we raise our children right not only for their own benefit but also because we don’t want to be judged by other people.
And let’s face it – a lot of people do judge our parenting skills, especially if we seem to be failing.
This book is the book every parent needs to read.
LAUNCH: How to Get Your Kids Through College Debt-Free and Into Jobs They Love Afterward
Okay, so the specificities when it comes to getting financial aid might be US-specific bu the rest of the book isn’t.
At its core, this is a parenting book, written to help parents raise strong, driven, thoughtful children who are about the world around them.
The author, who has 23 years’ worth of experience in curating “every possible good idea for succeeding brilliantly in college, graduating debt-free, and moving directly into satisfying and well-paying career after college“, comes from the well-known position that prevention is better than cure.
In other words, how can a child achieve his highest (and often expensive) goal, without having to take out a student loan?
You’d be surprised at the possibilities.
Blue Chip Kids: What Every Child (and Parent) Should Know About Money, Investing, and the Stock Market
Okay, the age range for this book is actually for children who are between 8-12 years old but I’m including this here because most parents are daunted by finances in general and the stock market in particular.
In other words, I recommend starting early.
Maybe don’t read this book to your child yet (or do what I do, which is simply make a simple bedtime story out of it) because information overload is a very real possibility but start reading it for yourself.
If you’re like most parents of this generation and you have no financial background, want to learn but are terrified that you won’t, start early so you can wrap your head around the theory explained in the book (it’s not as hard as you might think, promise!) and then start applying what you’ve learned.
And then, when your children are ready (and they might be well before the age of 8), you can start reading this book to them and together, you can think of practical ways your child can start applying the theory.
I wish I’d read this book for myself years ago.
It might’ve saved my 2018.
Financial books for toddlers
Now, we get to the fun stuff that you can read to your toddlers.
Personally, I think this makes great bedtime reading but some parents only read these books during the day.
You do whatever works best for you. 🙂
The Ninja Life Hacks series provides for kids what the website Lifehack does for adults: entertaining but practical tips on how to life.
This particular book in the series shows the value of delayed gratification and teaches financial skills, without boring your kids into sleep (okay, so this might not be your bedtime story of choice).
It’s also geared to kids as young as 3 so you can really start or even ramp up your financial education in the toddler years.
I also like the fact that it’s not all about the currency as most of the books I’d seen so far are in American dollars, which is obviously fine if you’re in the US but we live in Scotland.
I’m still trying to reinforcing the fact that we have the British pound here and not the dollar (which doesn’t always work as it’s my word against Blippi and my boy is well impressed!).
How the MoonJar was Made
First of all, I’d like to say that you probably won’t enjoy this if you’re looking for a kid’s version of a no-nonsense manual on budgeting.
It’s the opposite of no-nonsense, seeing as it’s about two children (one of whom isn’t human) trying to figure out how to allocate their rock collection.
This is actually why I like this so much. Your child might be too young to learn the intricacies surrounding money but will most likely not be too young to understand rocks (and how to allocate it).
The basic premise is the same, despite the obvious differences between the two.
This book also works best when combined with the Moonjar Three-Part Moneybox, which contains 3 tin canisters. Each canister has either save, spend, or share on the side.
Give, Save, Spend with the Three Little Pigs
The story of the three little pigs is one that most young children are familiar with and that’s one of the main reasons I love this book.
When they recognise the characters, kids almost immediately perk up and are far more likely to engage with you when you’re reading.
As you can probably guess, this book is a sort of prequel to the original fairy tale.
After the first book, the pigs have learned the value of hard work (and brick houses).
Anyway, the big bad wolf is back and once more blowing houses down.
To save everyone, the three little pigs start a construction company that build strong brick houses able to withstand the wolf’s mighty lungs.
Demand is high. Profits are high.
Now, the question is: what do we with the money?
Read this classic fairy tale sequel which “teaches kids a safe and practical approach to managing money“.
Lemonade in Winter
Major heads up for my readers who live outside the US, this is a book that will introduce your children to currency whilst teach basic financial skills.
And I really wish I’d known that before I bought it.
Whilst the basic skills are the same and you could argue that children need to know that different currencies exist, I really had a hard time when I was reading this book.
I kept having to pause to switch from the dollar equivalent to the pound, which probably confused the heck out of my child.
Whilst the amounts match, the number of coins involved in every transaction is different (for example, we haven’t got a quarter, we have a 20p and a 5p which means two coins are involved instead of just the one and this further means that the pictures won’t match).
This would be a highly recommended book for my US-based readers, but if you’re outside, choose one of the other books on this list. 🙂
Curious George Saves His Pennies
Just like Lemonade in Winter, this book talks about American currency so it definitely won’t be relevant to people outside the US.
But if you are using American dollars, then this is a fantastic way to start your financial education with your child.
Not only does it contain a press-out coin bank and an activity page which will show your child how bills and coins work but it’s also got a fun story about Curious George saving up for a special red train in the toy store.
It definitely has personal relevance to us as I have a train-obsessed toddler and if not for the fact that we’re outside the US, I’d have given this a 5-star.
Financial apps for toddlers
Of course, you can also turn to technology in order to help your child practise their ever-growing money skills in a safe space.
But I’d like to point out that, actually, for children this young, any app that teaches them math and numeracy skills would work pretty well.
There are literally thousands of counting apps, number recognition apps and basic math skills app in all available app stores.
You just need to choose whichever one serves your needs at the moment.
That said, we’ve got three that we really like: Super Numbers, Wizard 1 2 3 and Pigby’s Fair.
Super Numbers and Wizard 1 2 3
Before you know it, they’ll be able to count on their own, recognise the numbers and start becoming aware of the relationship between numbers and quantities.
These apps also each include a tracing game where children will learn the basics of writing a number.
These are all foundational skills for any sound financial education.
Designed by NatWest and Aardman, Pigby’s Fair is a simple app that will teach younger children about saving and spending by using virtual money.
In other words, you don’t need to give your child an allowance first if you don’t feel it’s the right time.
You can simply download this app, help them get set up and let them start playing.
One thing I really like about it is that it doesn’t include any in-app purchases (which, as I’ve learned the hard way, can be quite expensive), is free to download and you don’t even need to be a bank customer to play with it.
The premise is simple.
The app will take your child “on a trip through an animated fairground where they can manage their own stall, develop new stock, and earn virtual money that can be deposited at Pigby’s Bank“.
Your child will unlock new levels and items when they reach their savings goals (so they also learn the value of SMART goal setting, which is a double win for me).
There are three fairground attractions to play along the way –– Crockery Smash, Zapp! and Hook-a-Duck –– to keep things exciting.
Screen-free financial games for toddlers
Want your kids to enjoy a financial education but don’t want to rely on screens to do it?
We’ve got you covered with this short and sweet list of alternatives you can use instead of apps.
So, I totally adore Orchard Toys and so does my son.
Below is a list of all the games we’ve tried and enjoyed (and honestly, you need both if you want to cement your children’s learning).
They’re all designed to help your child develop their basic math and numeracy skills and remember the lessons.
It’s no secret that young children love playing pretend.
So, join them in their world but incorporate money lessons when you can. Just make sure your lesson fits well into the game instead of forcing the game to suit the lesson.
For example, if you’re racing cars, you can ask your child, “How many cars are there? How many cars do you have in your hand? How many cars do you have in total? I’ve got 4 cars and you’ve got 5, who has more cars?”. [Obviously, not one after the other or it’s gonna seem like an interrogation.]
You can also play games that involve more financial lessons like role playing a shop assistant or a banker.
My son’s got a play kitchen and it’s easy to just “buy” some fried egg, which introduces the concept that you have to pay for something.
When they’re older, you can also start really diving deep into the maths of it: put prices on the food, count pretend money and make it into a realistic exchange.
The only limit is your imagination and you don’t even need to buy anything.
You can print off images of bills and coins from the internet and use those.
That said, you could also splurge on a few toys that really kick things into gear:
Final thoughts on how to improve financial literacy
The benefits of such an education are huge and far-reaching.
Not only are they constrained to having money when we’re older but can also do wonders for our mental health, our relationships, our future.
It’s true that money cannot buy happiness.
But it certainly can ease our lives and let us buy quite a few fun things and experiences.
As you can see from this post, there are many resources available that we can take advantage of to help us get the financial education we need, not just for ourselves as parents but also for our children.
They don’t break the bank.
And anybody can use them.
I hope you’ll be able to use them to your (and your family’s) advantage too.