The Importance of Early Financial Education

Helping children become more financially responsible is an international priority. But why is it so important to instill financial awareness at a young age? The latest research reveals that young adults lack money management skills, so they have no idea what the best ways to spend money are, do not have their financial priorities straight, and they are clueless when it comes to saving money. It is essential for parents worldwide to help their children acquire early financial education to enter the adult financial world fully prepared. 

Children always watch their parents’ spending habits and learn from their actions. Parents need to teach their children not only how to spend their money, but also how to make savings. 

Youngsters live in a world dominated by financial illiteracy. When they see something they like, they buy it without thinking if it fits their budget. Parents should be role models for children because their kids quickly adapt their spending habits. 

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Can money conversations from childhood affect adults’ decisions?

When parents have money conversations with their children, they help them grow into financially responsible adults. Kids learn how to develop a healthy relationship with money in the nick of time. Research proves that children who receive guidance to create correct spending habits also learn the principle of efficiently prioritizing resources. Parents give allowances to their children to instill financial responsibility, who quickly learn that they can gain extra cash by doing household chores. Also, they can help their parents sell household items to make more money. These activities can boost children’s financial sophistication and offer them a good start in adult life. 

How do modern children learn to manage finances?

Today’s parents can recall the times when their elders offered them a few bucks to buy something for lunch at school or when they were allowed to keep the change if they went to buy milk from the local store. They stuffed the money in their pockets and bought what their heart desired. But nowadays, parents need other ways to teach their children to manage money. They live in a world where technology controls financial actions and transactions are no longer tangible. Very few operations imply cash, so learning how to be financially savvy is more complicated than ever. 

All the games children love to play nowadays come with a cost, and the user can make in-app purchases, but children’s money skills do not measure up for the test. Often, children get their hands on their parents’ smartphones and spend thousands of dollars on in-app purchases, without even knowing what they are doing. So, parents need to learn how to turn off in-app purchases and teach children to stay away from platforms that provide paid games. 

The problem has gotten out of parents’ control lately and, in some cases, law enforcement organisations have had to conduct investigations on app providers like Google and Apple. In 2017, the Atlantic reported that Amazon decided to give back $70 million to the users whose children made in-app purchases. 

So, nowadays, when there is no more real money, parents need new and more creative ways to teach their children to manage their finances. 

Children need to master the financing basics

The University of Cambridge revealed children around the age of 6 could acquire general financial information because they understand how money affects their family’s well being. It is not easy for parents to talk about money, but it is paramount to share knowledge with their children and not treat the subject as a taboo. If they have difficulty in paying the bills or buying things, they should let their children know. Parents should not try to protect their children by hiding the truth of their financial status. Kids need to understand what their parents can and cannot afford. 

Lately, companies have decided to implement salary transparency to encourage parents to have a financial conversation with their children. Parents can even find free online apps they can use to teach their children the basics of managing and saving money. Many of them are simple to use and designed just like games, requiring children to complete financially-related tasks. 

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Financial literacy should be taught in schools 

At present, schools worldwide do not find teaching money basics a priority. But an ever-increasing number of parents and students wish for schools to teach financial literacy. Only 15% of the world’s students have to follow economic classes. Governments are the ones that decide what subjects children study in school. 

In some cases, parents decide to enrol children to extra classes provided by third parties to improve their ability to manage their funds. Other times, schools take the initiative and add financial literacy to their curriculum justifying that financial education is of the essence. 

According to a January 2019 study, out of 1,000 millennials, 76% considered it essential for people to study personal finance in high-school. And more than 85% of them stated that they do not think high-school subjects prepare them for real-life situations that imply managing finances. 

Technology is helpful in getting children to understand the basics of managing finances

Technology is a helpful aid parents can take advantage of if they want to introduce their kids to financial fundamentals. For example, they can help their kids use a budget planning calculator or they can use apps that target kids who help around with house chores. They complete their tasks they were assigned, and their parents grade them in the app, so children get a specific credit score. Some of the rewards are monetary while others imply activities like playing computer games, getting a new toy, spending more time with their friends, and other similar activities. 

Other apps allow children to track their allowance spending and schedule their payments. This way, they can keep track of their transactions and split the sum into different categories, from priority purchases to extra expenses, and savings. 

However, parents should use tech apps only as a complementary method of teaching their children more about finance. They should rely on offering a healthy financial model and on teaching them how important it is to manage their savings effectively. 

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