April is Financial Literacy Month in the US – a concept that was officially introduced by President Obama in 2010.
Here at Infinity we are right behind any initiative to educate the public on financial literacy, a subject which is often neglected with serious ramifications for millions of people around the world.
The consequences of poor financial literacy can be truly catastrophic leading to irresponsible spending, high levels of debt and financial stress which can ruin relationships and destroy families. That’s why young people need to be taught the basics about finance and the consequences of poor financial decisions.
As with many ills, prevention is better than cure. Which is why we strongly advocate cultivating financial literacy in children from a young age. Given that few countries include this as part of the educational syllabus, it is largely up to parents to do it. So where do you start?
Here are five ways to help your children get to grips with the financial basics such as personal financial management, budgeting and investing in order to instil in them good money habits which will enable them to lead happy and financially stable lives:
1. Start early
Research suggests that monetary habits are formed early (by the tender age of 7!) and are difficult to reverse so it’s never too early to start teaching your children about responsible spending and saving. Of course, you need to do this in an age-appropriate way. One important habit that can be instilled early on is the capacity to defer gratification. Even small children can learn about saving their pocket money to buy something that they really want, however inexpensive.
2. Save, spend, share
This is a great concept to show the different roles that money can have and encourage saving and giving from an early age. When your child receives money, split it into three jars – one for saving, one for spending and one for sharing. Clear jars are good so your child have a visual reference of how much they are accumulating. Ask your child to set a goal that they want to spend their savings on – a small toy or similar – and keep it achievable. When they reach the goal, let them physically hand over the cash to buy their desired item.
3. Involve your children in financial decision-making
When you go to the supermarket, give your child a small budget to spend on a certain item such as treats. They will soon understand that if they choose to spend their money on the fancy Lindt chocolate they will get less than if they choose the supermarket own brand stuff. Every purchase involves choice and understanding how our choices impact our financial stability is a crucial life skill.
4. Establish the difference between wants and needs
Who hasn’t heard their child say ‘I need those sweets’? Pointing out the difference between wants and needs encourages children to think about their spending choices and consider each purchase carefully to establish whether it is essential or non-essential. Of course we all make frivolous choices from time to time but understanding which expenditure to prioritise is a key life lesson which comes in very handy once we have to be financially independent.
5. Lead by example
Demonstrating good money habits yourself is the best way to show your children how to stay financially fit. Pay your bills on time, avoid credit cards, be a savvy spender and talk openly about finances to avoid the subject becoming the taboo it is for so many families, with disastrous consequences.
Cultivating financial literacy is just one way to get your children off to the best possible start in life. You’ll also want to think about how to protect their health, fund their education and ensure they are financially secure, whatever happens to you. We can ensure that you have all bases covered with a holistic financial plan. Why not contact us and set up a chat with one of our professional advisers to see how we can help you?