There is an old saying among personal financial analysts, “Even a doctor needs help in sorting out his finances”. Such is the importance of finding someone who can tell you how much to save and invest in sync with your financial goals. It also explains why even the most successful entrepreneurs and businessmen hire the services of professionals to manage their finances. In the end, we all crave financial independence though most of us continue slogging most of our lives not knowing when to stop.
As said by the famous Lebanese mathematical statistician, Nassim Nicholas Taleb, “The world is split between those who don't know how to start making money and those who don't know when to stop.” However, without an adequate understanding of budgeting, investing and managing our investments and loans, achieving freedom from financial worries is not possible. Ensuring financial literacy is a must to ensure enough money for retirement in the long run.
Focusing on financial education
Every year, April 25 is observed as “National Financial Awareness Day”. Though we must be careful about the state of our finances each day, it has become imperative to dedicate a day to discussing the nuances of finances that are strangely ignored despite their increasing importance in today’s times. There is an ardent need to comprehend economic ideas and master them to be able to manage one’s finances. Without knowing how money works to create more money, one cannot hope for a financially sound existence.
One way to secure finances is to focus on studying finance early in life. This explains why the Reserve Bank of India (RBI) along with other regulators brought forth a financial literacy programme for school education boards in November 2022. Anil Kumar Sharma, Executive Director, RBI, said, “If we could inculcate basic financial literacy in school education, then that would be much better to expand financial literacy in the country.”
Start with the basic concepts surrounding earnings without which you cannot learn about savings and investments. How much to save and how to ensure regular savings is the first step to planning your finances. Planning your investments is next in line, which involves deciding how much to invest, where to invest and how long to stay invested. Different people have distinct financial goals, thus, explaining why some people prefer equities over debt fund investments. Comparing returns with interest rates while also accounting for tax incentives and liabilities is important.
Educating children about finance
You cannot expect children to know finance by themselves. Money management skills do not come naturally; they must be inculcated through continued learning and experience. Teaching children how to save is an important first step in teaching them the value of financial education. Children have the benefit of having time on their side, which underscores the need to teach them early in life.
The earlier your child begins investing money, the greater the future benefits. Tell them about the compounding effect and its importance in helping your money grow. Because money is earned each year from the previous year’s profits, children must learn about the magic of compounding that results in the increase of gains through the addition of interest to the principal investment amount. The way parents talk about money and make financial decisions sends powerful messages to their children.
Today’s generation loves to live on credit, thanks to the easy availability of credit cards and personal loans. Also, teenagers are growing up in a world dominated by digital banking; the “tap and spend” approach has destroyed both lives and families, thus, underlining how online shopping has caused many to lose their money or their savings accounts getting depleted in the long run.
Why financial literacy for children is important
How do you expect your children to manage their finances when they know nothing about how to handle their money? Financial literacy is a must, especially, for today’s children who are more inclined towards being independent early in life.
Financial literacy focuses on the ability to manage one`s personal finances properly, which is why you must teach your children the basics of finances as you educate them about other subjects. Your wards can make prudent financial decisions regarding savings, insurance, real estate, college payments, budgeting, retirement, and tax preparation only when realizing the importance of money in their daily lives.
Financially literate children are better prepared to handle emergencies and grow up into financially responsible adults. They are prepared for the unexpected by learning about financial literacy topics such as savings and emergency planning. Handling unforeseen situations and unwarranted circumstances is made easier by practising financial literacy beforehand and being prepared for anything.
Also, financial literacy instils much-needed trust. Individuals who have enough knowledge of finance can approach major life decisions with greater confidence, knowing that they are less likely to be adversely affected by sudden outcomes.
There are many ways to know how to educate your children about finance. Teaching your children early in life the value of money will help them become savers rather than spenders. A separate financial literacy class may not always be possible. Instead, inculcate in them the value of money by making them financially savvy.