How To Explain Financial Literacy To Kids

Kreg Bale
Kreg Bale December 29, 2021
Updated 2022/01/29 at 7:33 PM

Proper handling of money is not taught at school, but it is an important part of adult life. And if it appeared by itself, there would be no fraudsters and pyramid schemes left in the world. In this article, we look at how to teach your child financial literacy and keep them from making important mistakes.

Why do you need financial literacy?

You can make a lot of money and still don’t have this ability. After all, it’s not just a matter of quantity, but also how exactly we manage money: spending, investing, saving.

Financial literacy is a certain knowledge, which is needed to manage incomes and expenses, allocate money correctly, and how not participate in dubious financial operations. The person with this ability certainly will not suddenly find himself broke a week after the paycheck or give out too much money while gambling on right attitude to money, the ability to curb his “I want” and to think about the next purchase are established in childhood. And no educational institution can help in this as effectively as the family.

Financial literacy for children

How to teach your child financial literacy? And most importantly – when to start? You should start with it as early as possible. The correct concept of money should appear in the child even before he has his own pocket money. But each age needs a different approach. 

The important parts of financial literacy are:

  • Understanding where the money comes from and how and when it is earned.
  • Knowing how to distribute your pocket money and save for big purchases.
  • A general understanding of economics and what credit, deposit, investing, and taxes are.
  • Formation of responsibility for your financial decisions, as well as the ability to spend money consciously.

It’s too early to explain to a little kid how the economy and credit work, but it’s a good time to give your kid a general introduction to money. When you go shopping together, remember to explain why you chose these particular items, how much do they cost, and what the shopping budget is. Talk about how much you need to spend on groceries for the whole family and how much will be left over for sweets.

As school life begins, pocket money becomes a necessity. And it’s a great excuse to teach your child how to plan their budget. In the beginning, you give them a small amount every day, but gradually you can switch to giving them money once a week. This is the first step in getting your child to manage their own money.

You can also make a separate notebook where the child can record his income and expenses. Even a third-grader can do this simple “balance sheet. Talk to your child about the fact that you don’t have to spend all the money at once.

Tipps on how to teach your kids financial literacy

  • Set an example. Pay attention to how balanced your financial decisions are. It is useless to teach your child to plan the budget if parents do not always understand where the salary disappeared so quickly.
  • Don’t be afraid to give pocket money to your kid.
  • Allow your child to make mistakes and gain his own experience. Here’s an example of how young adults, teenagers and kids can invest wisely.
  • Teach your child to keep track of their expenses, to write down and analyse all their spending. This is the easiest way to help children develop a conscious attitude to money and develop financial literacy.

Explaining financial literacy to your kids isn’t an easy task. Moreover, even adults accumulate financial knowledge throughout their lives. But understanding the fundamentals of financial ability will make adult life for your child easier.

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