Teaching Your Kids Financial Literacy: Why is it so Important?

We’ve all made money mistakes we wish we could go back and change, or that we wish we knew about sooner. Kids are the future generation, and even just thinking about the mistakes you made as a young person navigating finances, I’m sure there are some things you wish you would have been taught - so make sure to do that for your kids! 

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Teach them about the importance of maintaining health finance habits, saving and avoiding debt. When you start educating them on financial literacy early, it has a huge impact on their ability to manage their finances when they’re older. 

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Show, don’t just tell 

This one might be a hard pill to swallow, but it's true y'all. You need to be setting a clear example for your kids, they recognize when you're telling them one thing but doing something entirely different. Talk to them about your strategy for growing your savings, budgeting, and how you make financial decisions - in a way they understand.

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Not only is it important for you to set a great financial example for them, but it’s also important to actively show them what saving means, what it feels like, and have them actively contribute to savings. Depending on their age this could look like giving them a monthly allowance and making them save a certain amount of that, or if they’re older and have a babysitting or dog sitting gig, have them take a certain percentage of their earnings and put it in savings. 

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Show them what it feels and looks like to spend money 

When you go out to the store, have them bring some of their savings with them, now when they say they want a pack of gum, or a small toy, help them pull out the money needed to pay for it. But also have them give the money to the cashier or put it in the self checkout.

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This is a way to have them make the connection between physically handing over the money to buy that ONE item and how much of their savings they had to use. Not only is this a great experience for them but it will also help them understand when you tell them no to something and follow it up with "you can start putting money in your savings to buy it later, I can help you."

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Older kids and teens start to understand that patience and earning money take work, but it pays off. In order to teach them this, you can start pointing out to them when they may want to rethink their decision, or giving them friendly reminders that if they want to buy this now, they won't have money to buy Y later.

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Often money can start to burn a hole in kids pockets and it can be difficult for them to recognize when they may want to rethink a spending decision. You can serve as that friendly reminder when the time comes.

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Why is teaching kids about financial literacy so important? 

Unfortunately, real-world financial literacy is not something that is common knowledge or standard when it comes to school curriculum - so it’s up to you as the parent to help your child understand the importance of healthy money management habits, how to save, spend wisely, and see the risks and rewards associated with good money habits. 

Teaching them early helps them avoid spending mistakes 

By teaching your child about the importance of finances and making good decisions, you can also combat common mistakes that even adults make, like impulse buying, credit card usage, and not having a budget or a savings account. 

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Teens especially are fantastic at capitalizing on opportunity, and this includes impulse buys. You can do a few things in the case of an impulse buy scenario, and it might be beneficial to do both! Tell them they can buy the item with their commission earnings, but suggest that they wait a day and think about it - especially if it's over $15.

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Impulse shopping is something that adults struggle with too, and you may find that helping teach your kids about financial literacy and avoiding spending mistakes, might help you get better with your financial management too. After all, you’re trying to stress the importance, and when you’re doing something other than you’re telling your kids to do, they’ll call you out on it! 

Stressing the importance of patience and commitment

Teaching patience and really thinking about a purchase as well as commitment to health money habits is going to change their view on money. For example, a brand new item they want will more than likely still be there later and they may even forget about the item entirely after some time. Think of how many times you've seen something in a store, bought it, then forgot you bought it 3 days later - adults are subject to the same ailment as kids.

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It's important when teaching financial literacy to kids, to express that you can still have fun outings or spend money without overspending. Social media and friends will likely be a huge influence, for older kids, on their financial situation, but hammering home that spending should be done wisely and consciously will help them grow.

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Helping them understand the value of earned money

Older kids and teens start to understand that patience and earning money take work, but it pays off. In order to teach them this, you can start pointing out to them when they may want to rethink their decision, or giving them friendly reminders that if they want to buy this now, they won't have money to buy Y later.

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Often money can start to burn a hole in kids pockets and it can be difficult for them to recognize when they may want to rethink a spending decision. You can serve as that friendly reminder when the time comes.

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As a parent it’s required to provide basic necessities to your child, but as they get older, you can start to teach them the importance of earned income and why saving it, putting it towards those necessities, and not spending it on things without having a purpose behind it, can lead to poor financial stability. It’s a great way to teach them early the true value of the money they earn, that way when they get a job and start earning that money, they will hold it at a higher value because they understand the importance of it. 

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Educating them about debt and using a credit card

This specific aspect of financial literacy won’t come into play until you kids are older, but it’s still an incredibly important aspect to make sure they understand. No matter what, having a credit card is bad news. Teaching your kids this as early as possible will save them so much time in the long run and issues later. Paying down a credit card can be extremely daunting and can rack up quickly.

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If you can ingrain in them the biggest personal finance lesson, it's avoiding any and all kinds of debt as much as possible. Teaching them about money habits and healthy money behavior can only go so far if you don't express to them the dangers and complications that come with debt.

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What you really want to teach them is how to budget, earn money, and save so that they can build a wealthy future for themselves without being tied down. You don’t want your kids to bury themselves in debt as soon as they’re out in the real-world, and the easiest way for them to get buried by debt is credit cards. 

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Let’s Recap

Unfortunately, financial literacy is not something that comes as a standard part of school curriculum and is not common knowledge for most people. However, it is such an important part of life and something that you can make sure your children have a good handle on and understanding of before they’re off to do it on their own. 

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Showing them that money has real value beyond just being able to buy something, that it has the ability to build wealth and set them up for a successful future, will enable them to make better financial decisions later. Plus, it might even help you get a better understanding of the value of money and the importance of health finance habits by teaching these to your kids. 

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It doesn’t have to be overly complicated, and the sooner you start teaching your kids about it, the easier it will be for you to continue that practice and it will become second nature to them when they’re out of your house and on their own in the real-world. As a parent you want your kids to be successful, but that often means ensuring they know and understand things they may not be taught my school curriculum - it’s up to you to make sure they have a good grasp on these concepts so they can be successful and practice good financial habits for the rest of their life