According to reports made by the Financial Educators Council, in the US alone, over 77 million people fail to timely pay their bills. Moreover, 39% of people have debt that they carry from month to month. At the end of 2020, consumer debt hit $14.56 trillion, one of the main causes of which are mortgage, auto, and student debts. These grim statistics can well be the results of poor financial education of children. In today’s article, we will discuss the importance of financial literacy amongst kids and how it can be taught from a young age.
What Is Financial Literacy?
Financial literacy is an abstract notion that can describe many things. In general, it refers to a combination of knowledge about debt and credit management. Financial literacy includes the understanding of how to balance a budget, use a credit card or a bank account. Financial literate people know how to manage their finances so that they can avoid debt. It also helps them make financially smart decisions, like funding their children’s education, buying a house, and saving money for retirement.
Financial Education of Children
When it comes to financial literacy, there is no such thing as “too young.” The concept of earning things can be taught from the age of three.
What Is the Importance?
Knowing the basics of financial management prevents children from making wrong financial decisions in the future. Some parents give their little ones piggy banks so that they can understand the concept of saving money. However, financial literacy is a far more complex notion that requires a system of elaborated steps and time for children to comprehend.
What Should a Child Know?
Here are a few things that you can do to teach your children financial literacy:
- Draw a strict line between needs and wants. Explain that things like food, clothing, education, house, and healthcare are of first importance. They go into the “needs” category. Wants, on the other hand, are additional stuff — sweets, the latest smartphone, or designer clothes. You can use your budget as an example of how needs play a superior role to wants in its forming.
- Let your children earn their money. Instead of lending, offer money in exchange for chores. Not only will they learn simple patterns of handling money but also the value of their work.
- Set saving goals. Saving money without a goal may look pointless to them. Figure out together what your kids want and motivate them. Help them figure out when they can reach their goal.
- Provide a place to save. Money boxes work well for younger children. If they are old enough, you can provide them with their personal savings account. By seeing the progress, they will be encouraged to continue working towards their goal.
- Ask kids to track their spending. They should write down their purchases to see where money is going. Let them think about how changing their spending pattern can bring them closer to their goal.
Financial Games for Kinds
Games are one of the most effective ways to teach children the basics of financial literacy. There are various activities for different age groups.
Preschool Age (3-7 Years Old)
Peter Pig’s Money Counter
The game teaches how to count, save up, and identify money. Kids have their own budget to manage and buy clothing items from a virtual store and dress up their characters.
Cash Puzzler
In this game, children should complete a memory puzzle and form money bills. They also will be bombarded with historical facts related to money.
Junior School Age (7-11 Years Old)
Wise Pockets
It covers the essential topics of saving, income, credit, and spending. Funny characters will guide children through the game.
Counting with Coins
The action takes place in a grocery store. Players must do some quick subtraction and addition to determine the cost of groceries. The goal is to teach children money management.
Senior School Age (11-14 Years Old)
Break the Bank
Children get the opportunity to try themselves as community bank workers. They get to manage customers’ loans and help them with their savings.
Hot Shot Business
Kids will find themselves in Opportunity City, where kids can try themselves as local business owners. They will face the challenges and successes that come with running a business.
Adolescence (14-18 Years Old)
Credit Clash
The game explains to kids credit scores. The goal is to make a perfect credit score. Along the way, children will face multiple loans, interest rate negotiations, debts, and other stuff that can influence a credit score.
Payback
This game encourages kids to grasp the idea of student loans. It shows how they can avoid taking student loans and getting into debt.