As parents, we all want to give our children the best possible start in life. We want to ensure that they are healthy, happy, and well-educated. We want our kids to grow into independent, well-rounded human beings. So we teach them life skills and instil a strong work ethic.
However, there is one area that is often overlooked when it comes to our children’s development: financial literacy.
Money is an essential part of life, and it is important for children to understand how to manage it. Teaching kids about money and financial literacy can help them develop healthy financial habits that will benefit them in the long run.
Financial literacy is the ability to understand and manage one’s finances. It includes knowledge of financial concepts such as budgeting, saving, and investing, as well as the ability to make informed financial decisions.
Teaching our children about financial literacy is crucial for their future success, yet many parents struggle with how to start the money talk with their kids. Often parents find it difficult to start the money talk with their children because it can feel intimidating.
In this article, we will explore the importance of financial literacy for children and provide practical tips, information, and strategies for starting the money talk with your kids.
Why Financial Literacy is Important for Children
Schools teach children about conventional literacy, but many don’t teach them about financial literacy. Many parents also don’t broach the subject with their kids. If children don’t get financial education when they’re young, how can we expect them to grow into financially responsible adults?
Financial literacy is the ability to understand and manage money. It includes knowledge of financial concepts, such as budgeting, saving, investing, and credit, as well as the ability to make informed financial decisions. Financial literacy is important for kids because it gives them the tools they need to be financially successful as adults.
According to the Australian Governments National Financial Capability Strategy, 17% of Australians are not very confident or not confident at all about their ability to hit a financial goal. Furthermore, 94% of young Australians aged 14 to 17 either agreed or strongly agreed that it is important to learn how to manage their money, yet only 42% of young Australians aged 14 to 17 felt confident or very confident managing their money.
Read more: https://financialcapability.gov.au/
This lack of financial literacy can lead to several problems, such as high levels of debt, difficulty saving for retirement, and a lack of investment in education and career development. By teaching our children about money, we can help them avoid these problems and set them up for a lifetime of financial success.
Teaching kids about money and financial literacy can help them understand the value of money, how to budget and save, and how to make smart financial decisions.
Understanding the value of money
Children who are financially literate understand the value of money and how to use it wisely. They know that money is not unlimited, and that they need to make choices about how to spend it.
Budgeting and saving
Financial literacy teaches children the importance of budgeting and saving. By learning how to budget and save, children can learn to manage their money effectively and make sure they have enough for the things they want and need. 58% of Australian kids don’t feel confident managing their money.
Smart financial decisions
Financial literacy also teaches children how to make smart financial decisions. Children who are financially literate are better equipped to understand the risks and benefits of different financial products and services and make informed choices.
When to Start the Money Talk with Your Kids
Our attitude towards money is shaped in early childhood by observing how our parents handled money. A study by the University of Cambridge found that, by age seven, children start to form money habits that they will carry through to adulthood.
The study indicates that, by age four, kids are able to understand that items need to be bought and paid for. By age seven, they are able to grasp the value of money and how a transaction works. That’s why it’s never too early to talk to your kids about money.
How to Start the Money Talk with Your Kids
Starting the money talk with your kids can be difficult, but it is an important step in helping them develop financial literacy. Here are some tips for starting the money talk with your kids:
Start early. The earlier you start talking to your kids about money, the more likely they are to develop healthy financial habits. Even young children can learn about the concept of earning, saving, and spending money.
Use everyday examples. Children are more likely to understand financial concepts if they can relate them to their own lives. Use everyday examples, such as allowance or the cost of a toy, to help your kids understand financial concepts.
Be a good role model. Children learn by example, so it’s important to practice good financial habits yourself. Show your kids how to budget, save, and invest by setting a good example.
Use age-appropriate language. Children of different ages will understand financial concepts differently. Use age-appropriate language and explain concepts in a way that your child can understand.
Make it fun. Learning about money doesn’t have to be boring. Make it fun by playing games or using interactive tools to teach your kids about financial concepts.
Encourage questions. Encourage your kids to ask questions about money and to share their thoughts and opinions. This will help them understand the concepts better and it will also make the conversation more engaging.
Hold family budgeting meetings and involve them in decision making. Most parents exclude their kids from the household finances, seeing it as an adult responsibility. But including the kids is a great learning opportunity for them. They’ll gain an understanding of how much household expenses cost and, as a family, you can agree on ways to cut costs. Involve your kids in decision making about money, for example, when you’re buying things for the house, explain the cost and the benefits of different options. This will help them understand the value of money and the decision-making process.
You can also set financial goals, like saving for a family holiday or towards a deposit to buy a larger family home. Be open and honest about finances with your kids. If you’re going through a financial crisis, don’t be afraid to share this with them and explain the steps you are taking to manage it.
What to teach your kids about money and Tips for Teaching Specific Financial Concepts
Teaching your kids about money and financial literacy is an ongoing process. Here are a few key concepts to teach your children about money:
The difference between needs and wants: Children need to understand the difference between needs and wants. Needs are essential for survival, such as food and shelter, while wants are things that we would like to have but don’t necessarily need, such as toys and clothes.
The concept of earning and saving money: Children also need to understand the concept of earning and saving money. Teach them about the importance of earning money through work and how to save for the things they want.
Budgeting and spending: Teach your children how to create a budget and how to stick to it. Show them how to prioritize their spending and how to make smart financial decisions. Kids can understand the importance of budgeting by giving them a set amount of money each week or month and having them make decisions about how to spend it
Credit and debt: It is also important to teach children about credit and debt. Explain to them the difference between good debt and bad debt and how to use credit responsibly.
Giving: Teach your kids the importance of giving by encouraging them to donate a portion of their money to charity.
If you’ve ever made poor financial decisions as an adult, was it because you didn’t receive enough education about money management when you were growing up?
If so, don’t make the same mistake with your kids. Talking to them about money now can set them up for financial success in the future.
Looking for more? Explore Money and Budgeting Skills for Children from Twinkl Australia