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Every parent should strive to provide their child with the best parental education to set them up for the real world—and one crucial life skill you should impart to your kid is financial literacy.
Financial literacy refers to the proper management and allocation of financial resources for one’s own benefit. To become financially literate, a person needs to possess a broad range of financial skills, namely budgeting, investing, saving, and smart spending.
Learning how to properly utilize money is something many individuals struggle with, even as they enter adulthood. This is why, as parents, it’s important to instill financial literacy in your child as early as possible to set them up for success later in life.
Getting your child to become financially responsible is one of the greatest gifts you can give them. Besides setting them up for adulthood, there are a couple of other reasons why parents should prioritize this act.
Let’s look into some reasons why education should begin with the parent, as well as explore ways how you can give your kid a financial head start.
Why Should Parents Teach Their Kids Financial Education?
There are several reasons why parents should promote financial literacy to their children.
Here are four of these reasons in more detail.
1. School Doesn’t Holistically Teach Kids Finance
While British and Australian schools have placed financial topics in the national curriculum, it’s often relegated to a branch of mathematics or statistics instead of being its own core subject.
The fact of the matter is that financial literacy is a life skill that should be strengthened as early as childhood. A few classes on it is merely insufficient for a child to wholly understand the concept.
In a school setting, your child may learn how to do financially tangential things like comparing different prices, summing up a list of numbers, and so on.
However, applying this knowledge is something within a parent’s jurisdiction. It’s your duty to guide your children in real-world financial practices, such as sticking to a grocery budget, comparing item valuations, and so on.
2. Helps Build Financial Responsibility Early On
When you’re a kid, you can get away with spending your entire net worth with little repercussions. However, if you constantly teeter close to debt as an adult, this can have massive real-world implications.
As a parent, encourage your child to value money as early in life as possible. You can start by showing the finite nature of money, like how purchasing groceries or making a mortgage payment can deplete a large portion of your funds considerably.
You can allow them to feel this limitation by handing them a small allowance. By being strict with fund allocation (and saying no if they ask for more money), they’ll be forced to reprioritise and make decisions based on their current financial capacity, which is a useful discipline to have in childhood and beyond.
3. Prepares For Future Independence
Parents should also teach their children about money early on so that they can be equipped with financial skills that can help them become more independent later in life.
When a child is self-reliant, they can grow and flourish with confidence, allowing them to accomplish more than they otherwise would be able to do.
Having independence also installs in them a sense of discipline as opposed to laziness and pleasure-seeking behavior, which is a crucial trait for being adept at money management.
Your child’s independence can also help them find ways to earn money on their own, which can be useful for supporting the household or lowering your total costs as they gain a bit of income themselves.
This makes the entire family more self-sufficient and stable, promoting a more positive and healthy familial relationship.
4. They See You As a Role Model
Whether you’re aware of it or not, your child models the behavior of the people closest to them. In most cases, it’s you, the parents, who they seek to reflect, particularly in how they act and behave around complex situations, like dealing with finances.
Having said that, you must walk the talk and uphold the teachings that you have instilled in your child, especially when they’re around. Demonstrate responsible financial habits, such as budgeting, saving, and making thoughtful spending decisions.
By consistently practicing what you preach, you reinforce these important lessons and set a strong example for your child to follow throughout their life.
5. Makes Them Better at Decision-Making
Education, in essence, helps prepare your child to make the best decision for themselves—and financial education is no exception to this rule.
When you equip your child with the necessary skills to handle money properly, they’ll be more accustomed to making more grounded decisions regarding their money. This applies both in the present and future years.
This enhanced critical thinking capacity allows them to be more deliberate with how they spend or save their money, which can help set them up for future success more readily.
If you want to improve financial literacy in your kid, visit Westpac for more information on how to help them foster a positive relationship with money.
How to Help Improve Your Child’s Financial Literacy: 4 Strategies
With the undeniable perks of having financial literacy, this begs the question: what can a parent do to improve their kid’s ability to manage their finances effectively?
We’ll answer that for you with four effective strategies aimed at improving your kid’s financial literacy.
1. Teach The Basics of Budgeting
An essential component of financial literacy is tracking and managing your income and expenses, a concept commonly referred to as budgeting.
Budgeting is an activity that you can perform regardless of your net worth. This makes it an excellent training ground for children to keep their finances healthy as they have to mindfully balance their inflows and outflows.
You can encourage your child to use budgeting apps to track their money or build their own with a budgeting spreadsheet template. Once they set up the habit, they can see its usefulness and carry it throughout their lifetime.
2. Help Them Set Money Goals
Being successful later in life is relative to how someone defines success. Some may tie it with a figure in their bank account, others would tie it to their monthly passive earnings.
While children don’t exactly have to worry about these things right now, it’s generally good practice to teach them how to set smart goals to improve their future life quality.
Sit down and have a conversation with them regarding their dreams and aspirations. Then, tie it with the need for finances (i.e. to become a doctor, they need to pay tuition to get the relevant college and post-college degree).
By highlighting the importance of finance in furthering their goals, your kid can respect the process and find the motivation to incorporate money matters as they set plans.
3. Teach Them How to Sell
Another way to give your child a head start in becoming financially astute is by teaching them how to sell.
Being able to sell a product (or one’s own service) is a good talent to possess to succeed in the real world, especially the business world.
Not only will being able to negotiate and sell increase your odds of scoring the best deals, but it also helps you wiggle your way out of bad ones.
You can teach your child to sell in various ways. You can have them play a role as a cashier in a garage sale or lemonade stand on their front porch.
Alternatively, you can encourage them to list secondhand items in online marketplaces like Facebook and eBay to reach a broader audience.
By giving them the avenue to sell, they can gain real-world experience and improve in their sales and communication abilities.
4. Gamify Financial Literacy
Ask any preschool-aged child: concepts like compound interests and mortgage plans can easily fly over their heads. If you want your teachings to be ingrained in their tiny heads, keep them engaged.
One way to engage them is by transforming personal finance into a game for them.
For instance, you can consider role-playing as a customer and they can play as a shopkeeper, and both of you have to agree on an item’s price. Another example is playing financial board games like Monopoly. This game can introduce financial concepts in a fun and competitive way.
Lastly, you can encourage some friendly rivalry by making a weekly family challenge related to finances. You can structure it differently each week, like awarding the top saver or the thriftiest spender.
By gamifying challenges, you can make learning more fun and intuitive for your child. In turn, this can help them naturally navigate and apply the best financial practices in real-life situations.