Sure, there are many benefits to raising a financially literate child. But how can you measure that? A good way to do this is by understanding what the financial literacy numbers for kids are and where they stand today. According to financial experts, the percentage of Americans in debt is around 80%. 8 in 10 Americans have some form of consumer debt, and the average debt in America is $38,000 not including mortgage debt. Owing money just seems to be a way of life for Americans, as collectively we have $14 trillion in debt. Financial literacy is not well taught in school which is why many Americans are in bad debt. This raises the topic of why it is important to raise a financially literate child. In this blog, we will discuss the benefit of raising a financially literate child
Benefits to raising a financially literate child
When is the last time you had to worry about money as a kid? Probably not many of you need to. That’s because most of us had the privileged to be raised by our parents to not be concerned about money until a certain age. Most parents would start teaching their kids the importance of personal finance mainly when they reach their 20s. Children as early as three years old can begin to understand the notion of money. Talk to your children about money as soon as they can count. Simple everyday activities may be used to teach fundamental money abilities. If a child is able to learn the importance of money at an early age, they are more likely able to financially do well in the future.
Increased earning potential
A financially literate child is better equipped to handle money and investments, which can lead to increased earnings over time. In the book Rich Dad Poor Dad by Rober Kiyosaki, it illustrates why having a child learn the importance of building wealth at an early stage is critical because children are curious and driven to learn new things.
Improved credit score
Having strong financial literacy skills can help improve a child’s credit score, which can lead to easier access to loans and other financial products in the future. In the world of finance, a credit score determines one financial accountability. In 2019, the US credit card debt hits an all-time high of $930 billion. “The data also reveal that transitions to delinquent among credit card borrowers have consistently increased since 2016, particularly among younger borrowers,” said Wilbert Van Der Klaauw, senior vice president of the New York Fed, in a news statement.
The youngest Americans (18 to 29 years old) had the greatest delinquency rates (9.36 percent). This is 76% greater than the overall average credit card delinquency rate. If only parents or teachers were able to teach these young adults the importance of money, then they wouldn’t have to face such danger again.
Reduced risk of personal bankruptcy
Raising children who are financially literate helps reduce the risk of personal bankruptcy in the future. There are multiple ways a person is a risk of bankruptcy, these can be from taking on high credit card debt, high-interest loans, or over-leveraging on mortgage loans. It’s scary to know that 51 percent of Americans have less than $5,000 in savings. And 35% have less than $1,000. The typical American’s monthly costs are $5,111, which is insufficient to handle an emergency. Unfortunately, the figures get much bleaker when we consider emergency savings accounts.
By having a financially literate child, the child would know the difference between good debt and bad debt. Learning to stay away from the bad financial decisions and make goods one that is based on research.
Improved financial planning skills
Financial literacy skills teach children how to make sound financial decisions and plan for the future, which can improve their overall financial stability. There are multiple ways to educate a child on financial planning skills. These can be from educating improving savings rates, looking into businesses’ financial statements, and working on creating a side hustle to grow into a business.
Why is there a need to raise Financially Literate Child
Raising a financially literate child is essential for their future success. Apart from teaching the importance of savings, parents need to be able to teach their children the ability to grow wealth. From a young age, children begin to imitate what they see their parents do – and you may not be aware of what they’re learning.
Children are observing how their parents spend money, whether it’s what they purchase, how often they buy items, or if they hunt for bargains. Some experts even say that this is one of the most important financial habits that children develop early in life. Here are some benefits to raising a child who is financially savvy:
1. They’ll be better equipped to handle their own finances.
By slowly giving children to make daily groceries purchases, paying for phone bills, or maybe even doing taxes. This would greatly educate and raise a financially literate child that knows how to handle their own finances. The child would be able to make purchases that are within his/her budget.
2. They’ll have a better understanding of how money works and will be able to save for the future.
Money is meant for these three functions: store of value, unit of account, and medium of exchange. By educating and raising a financially literate child, they would be able to understand how to properly use it. Whether it is to save for an emergency fund, a shared account for paying bills, or using investment tools to build wealth. Once a child is able to understand and grasp the concept of how money works, they would be able to grow their wealth better.
3. Less likely to get into debt or become susceptible to scams.
Scams are getting more and more common in this digital age. In Singapore, there were 46,196 reported cases in 2021, about 24 percent higher than in 2020. Victims are the ones that usually fall for getting rich quick schemes or tech support scams. By raising a financially literate child that knows deep knowledge of the financial world and is able to set financial expectations for him/herself, they would not be falling for these kinds of scams.
4. Being financially literate helps them have a better understanding of investments
In the investment world, there are many financial vocabularies one is able to learn. Nyla Hayes has found the secret to success, and it’s selling her artwork as NFTs. At 13 years old, a young artist has become a multimillionaire when she started putting her art up for sale as NFTs, or non-fungible tokens. Being willing to learn and open to trying out new things would be of utmost benefit to children to grow their understanding of investments.
5. More confident when it comes to handling their finances
As a young adult, handling a large amount of money or paying for large expenses can be really scary. One decimal mistake in paying your taxes can result in fines or not correcting calculating the company’s finances could result in huge losses. Handling money is tough work and it is especially tough when it comes to people who are not able to handle it properly. You can teach your kids the importance of handling their finances by paying through a credit limit credit card. This way, your child would be able to learn how to properly spend on the card and not overspend.
6. They’ll understand the value of money and will likely seek higher-paying jobs in order to save more money for the future
To a financially literate children, saving and making more money is important to them. At any point in time when there is an opportunity for higher-paying jobs, they would most likely join them. To a financially literate person, having more money to them means closer to financial freedom.
7. Likely to get into a relationship with someone who is not financially stable
Money disputes are the second most common reason for divorce, behind adultery. When it comes to money, high debt levels and poor communication cause worry and anxiety. Money is the primary source of conflict for nearly half of couples with $50,000 or more in debt. Almost two-thirds of all marriages begin in debt. That’s why having your child be financially literate is important so they would get into relationships which is financially sound.
8. They’ll know that it’s important for them
To save up for their own education or retirement, which will result in better financial stability later on down the road. A child that is financially literate will know the importance of wealth allocation for the present and future. They would be able to plan their finances in a 5,10, and 15-year journey.
9. Financial skills are essential in later life
Learning to pay the lower interest rates for a mortgage, refinance a mortgage to buy more assets, and use a margin loan to invest more stock. Financially skills are essential when it comes to saving money on taxes and the ability to invest more.
Importance of Raising A Financial Literate Child with Limited Resources.
There are many benefits to raising a financially literate child, especially one with limited resources. Great examples of these are self-made millionaires and billionaire that comes from India, these are Sundar Pichai(Google CEO), J.R.D. Tata (Tata Motor) or Parag Agrawal(Twitter CEO). Each of these individuals originated from a low-income background with few resources, and they had to work hard to achieve success. In addition to improving their own financial security, children who are financially literate are:
1. More likely to take care of their finances responsibly
In any case of emergency or in need to a sudden expense, a person with good finances backing will be able to cushion any ups and down in their life.
2. More likely to be able to save for the future
Knowing the importance of saving, a financial literate child would understand the importance of saving and invest for the future.
3. Less likely to need government assistance
This statement is mostly true. Simply because people with good financial literacy would know how to properly use government assistance in their own benefit. Such as having more invested into SRS (government supplementary scheme) or government education schlorships.
4. Preferentially seek out opportunities that will return a positive financial outcome
A financial literate would be able to choose a wide array of choices for their investment and make the best investment for themselves.
5. Better equipped to handle economic downturns.
For a financially literate person, whether the market goes up or down. He/she would still be able to make income, maybe even more. That because in the financial world, the rich people as illustrated in Rich Dad Poor Dad have ways to make money whether the market goes up or down. These can be from hedging their investment or the ability to refinance the house for equity.
Teacher Training Tip
The best way to get your children interested in money is to ask them questions. Ask them to tell you their secrets about how they are able to take care of themselves. If they cannot elaborate on their family’s background, ask them questions about things they have done in the past that have made a difference.
You can also try some simple exercises as follow-up activities. Place out four different colored pieces of paper on the table, then place a small amount of money on each one. Tell your child that you are going to give him or her $1 for each piece of paper he or she can find the correct amount in six minutes. When the time is up, ask them for their secrets and let them know you are impressed with what they have done. Repeat the exercise and see if they can improve on their success rate.
How to keep your child’s attention is a vital part of their development. Without it, then not only will your child have difficulty concentrating, but they will become upset, frustrated, and unable to focus on their academic goals. As such, you need to work with them on how to keep their attention as well as develop it.
Tips that you can try
Ask them to focus on one thing at a time. Fussing with their friends or killing time can make it hard for them to concentrate. Encourage them to try and limit these distractions, whether they be outside in the yard or inside the house. Work on their self-control. Allow their mind to wonder if they are not able to focus on what you are saying. Try shouting at them in order to get their attention and then ask a question that relates back to what you were talking about. Don’t always expect immediate results from your child’s focus skills, but try and work with them over time so that they become better at focusing in the long run. How do I know if my child is overactive?
How to Teach Your Kids About Money
Raising financially literate children is not only important for their future, it can also be fun and educational. Here are some tips on how to get started:
1. Start early
Young children are naturally curious and will want to learn about money. As soon as your child can understand basic concepts such as earned and unearned income, savings, and investment, it’s time to start teaching them. Make sure you have plenty of resources at your disposal, including books, documentaries, online classes, and even role-playing games.
2. Model good financial habits
Children learn best by watching and/or doing. If you are fortunate enough to have a household that finances itself well, encourages your kids to adopt similar habits. Explain why it’s important to save for a rainy day or put some money away for a car purchase down the road. Point out that living below their means allows them to have more money when they need it – something that will hold true throughout their lives.
3. Teach about debt and credit
Too often, kids think of borrowing money as a way to get what they want, whether that’s a new toy or a video game console . Parents can start teaching them the dangers of credit and debt, as well as why it’s important to pay bills on time. It’s also moderately easy to do this; buy a small amount of money-making toys with credit cards, and let them see how much interest they will rack up.4. Encourage kids to save for a rainy day. Kids often spend more than they have – especially after they get their allowance or cash gifts at Christmastime or birthdays – so encourage your children to put away some money each week. Set aside a portion of every paycheck or birthday present for saving. Save in a bank account that offers interest, such as an online savings account or one that requires direct deposits into it.5. Help
