International Literacy Day 2023: Why aim for your children’s financial literacy early in life?

There is a famous adage, “Literacy is a bridge from misery to hope”. However, the hope comes at a price – the price that you must pay to educate your child or the price your child will pay in the future for not being educated enough. A book can teach a lot but you put the contents of the book depends entirely on your intellect. This is the same with money too. You may know and be equally willing to earn and save money but how you put that money to further your earnings depends on your understanding of finances. While it helps to avail of the services of a professional financial advisor, why not use your time to understand some basic concepts in finance to realize the efficacy of your investments in the long run?

Financial literacy is not about getting a degree in finance nor has it anything to do with being adept at mouthing financial jargon. As stressed by the famous Japanese-American entrepreneur Robert Kiyosaki, “If you want to be rich and maintain your wealth, it’s important to be financially literate, in words as well as numbers.” Paradoxically, the most pressing issue in the current generation and economy is the deficiency in financial literacy.

As we observe “International Literacy Day” on September 08, 2023, to remind people of the need and importance of financial literacy, let us also remind our peers, friends, and families of the harm they will continue to endure by being financially illiterate. Intellect resolves issues and generates wealth. Wealth lacking financial acumen tends to dissipate swiftly. Managing finances is a learnable skill; you can learn to succeed in it as in any other subject.

Teach your children about finances early in life

Learning finance early helps. It is also necessary as people either exercise control over their finances or find themselves controlled by their finances. As the famous saying, “Teach them young, while there is still time”.

Financial literacy is crucial for all individuals, and there’s no such thing as starting too early when it comes to educating children about money. When youngsters grasp financial principles and acquire the skills to make wise financial choices from an early age, they are more inclined to cultivate positive financial behaviours that will endure throughout their lives. Also, with time on their side, financially aware children will start investing early in life, thus, allowing more time for money to grow into a significantly sized corpus.

Children follow example, not advice

Indeed, as you mature, you’ll observe that your child tends to mimic your conduct, sometimes even noticing behaviours you weren’t aware of possessing. It’s during these moments that you come face to face with yourself. This is precisely why it’s vital to model the behaviour you desire from your child.

For instance, if you wish to instill in your child the value of money through saving rather than squandering it on frivolous purchases, you should first lead by example. Refraining from buying items with little long-term value and resisting impulse purchases are habits your child will adopt when they witness your prudence with money. This doesn’t mean you need to be overly thrifty, but by treating both pennies and pounds with equal care, you ensure that your child appreciates the value of both.

How to educate your child about investing?

Are you imparting investment knowledge to your children? As they grow more attuned to financial concepts, it becomes essential to introduce them to the world of investing and equip them with the understanding and tools they’ll need as they enter adulthood.

There are numerous methods for imparting financial literacy to children. Here are several ideas:

Open conversations: Initiate open and honest discussions about money. Explain its origins, purposes, and the significance of saving and budgeting.

Allowance: Provide them with an allowance, a practical approach to teach them about earning, spending, and saving. Assist them in setting financial goals for their allowance and instruct them on tracking their expenses.

Savings account: Set up a savings account in their name. This offers a secure place for them to store their money and observe its growth over time.

Bank visits: Take them to the bank to familiarize them with banking operations, including depositing and withdrawing money.

Financial games: Engage in financial games designed to make learning about money enjoyable and engaging.

Literature: Explore books and articles that explain financial concepts tailored to children’s comprehension.

Personal examples: Discuss your own financial decisions with them, illustrating how you make choices and why you make them.

Children naturally develop at their own pace, so it may take some time before they’re prepared to delve into complex topics like portfolio construction and asset allocation. However, you can start teaching them the fundamentals of investing from a young age.

Most importantly, emphasize the relationship between risk and reward long before they contemplate various investment choices and the reasons behind where they might want to allocate their earnings in the future.

Since investing inherently involves risk, it’s crucial to commence with modest investments and progressively introduce more intricate options as your child’s comprehension grows.