Along with being part of everyday life, financial literacy is imperative to achieve certain financial goals (like saving for education, or retirement), and can help people make more responsible financial choices.
Most of us probably weren’t taught how to manage money in school, even though it’s a skill that can change your life. Some would say there is a direct relationship between not understanding finances and the problems caused by a lack of financial knowledge, such as unnecessary debt, unprepared retirees, and scrambled nest eggs – and I agree. Financial literacy is so important because it can help prevent poor financial decisions.
Along with being part of everyday life, financial literacy is imperative to achieve certain financial goals (like saving for education, or retirement), and can help people make more responsible financial choices. While it may take time for Canadian schools to add Financial Literacy to their syllabuses, you don’t have to wait to teach your kids at home. Much like investing, the earlier you start educating them, the more they will benefit in the end.
Financial Literacy Is A Huge Topic, So Where Should You Start?
These days, engaging your kids in a discussion about money can be a hard thing to do. You may be holding off for valid reasons (I know many people concerned their kid(s) will blab to friends or teachers) but it’s important to start the conversation.
If you’re not sure how to start an open dialogue about finances at home, I suggest you incorporate some of the following strategies I’ve tried over the years (although my kids are still learning!):
1. The Value Of A Dollar & Inflation
Turn your shopping trips into stealthy financial literacy lessons for your kids by bringing them along and checking a few places for the best price before you purchase. Explain how some places offer better deals for the same product, and that it’s a smart financial move to assess your options in order to get the best deal.
2. What “Saving” Is & Why We Do It
Next payday, or, if you choose to give your kid(s) an allowance, I recommend helping them divide their earnings into three categories – Spend, Save, and Donate (you may also need to help them open a bank account!). Then explain what the money in each category should be used for.
3. Paying Yourself First & Financial Priorities
Sometimes it makes more sense to prioritize debt repayments over saving, and sometimes it makes more sense to prioritize saving over debt repayment. Regardless, after you’ve helped your child understand how to divide their income, and before you let them get into their Spend funds (this is the key to paying yourself first), ask your child to take their Savings and put them into a savings account at the bank. If they don’t have a bank account yet, I recommend going to the bank with them to help them open their accounts (if they’re young enough you’ll have to be there anyway) and help them divide and deposit their money. Helping out the first few times should give them confidence to go in the next time and do it on their own.
4. Needs vs. Wants
I heard about this next strategy from a friend, and I wish I knew about it when I was teaching my kids the difference between Needs and Wants! Here’s what you do: take a magazine (kid friendly) a pair of scissors, tape, and a piece of paper. Flip through the magazine with your child and ask them to point out things they think your family Needs (the things you rely on to live comfortably), and cut them out of the magazine. Do the same thing with Wants (things not crucial to your life, but things that are nice to have). After, you’ll have two piles of pictures that you can divide into their respective categories. Take your piece of paper, and get your child to start taping the images into each category. By the end of this exercise your child should have a stronger understanding of the difference between Needs and Wants. Once they understand what a Need versus what a Want is, you may be able to avoid future toy store meltdowns!
5. Paying Bills
Bills are pretty straightforward, and I recommend keeping this one simple. Invite your kid to sit with you the next time you sit down to pay bills. Explain what you’re doing, and what would happen if you didn’t pay the bills.
6. Saving To Donate
After your kid has an understanding of saving and giving, ask them to pick a charity of their choice. Each month, get them to put their allocated “donate” portion into a separate account, and come the end of the year help them donate the funds they’ve put aside to their charity of choice.
7. What A Budget Is & Living Within Your Means
Ask your child to plan a family dinner, and give them a set amount of money to work with, along with criteria, like a main course, a side dish, and possibly even dessert! Go shopping with them to help keep them on budget (and recipe – I can’t imagine pop tart carbonara being the most nutritious meal), and answer any questions they have along the way. As you’re shopping, help them swap out the more expensive choices so the budget stretches as far as it can.
Of course, depending on the age of your kid(s), you may want to change your approach to these concepts, however, the idea is to educate your children and set them up for success. With some time and patience, helping your kids be financially literate is entirely possible. And hey, you’ll even get to spend some extra time with them.