Financial literacy is as important to children and teens as it is to grown-ups. From money management and finances to credit management, these fundamental knowledge are crucial to the development of both problem-solving and mathematical skills, and above all, success in children’s lives.

It’s important for children to know how to earn, allocate, spend, and borrow money when they are still young; way before the need arises. When the time comes, they’ll be in a better position to apply for various loans including mortgages, student loans, and credit cards. They’ll know what type of credit score is needed to qualify even before they can apply.

According to a survey conducted by creditcards.com, experts recommend that children have access to credit cards because this will provide parents with a new opportunity to teach their children how to manage and build credit.

Grade 6-8: The Earlier the Better

During this age, children are already familiar with money. Chances are they have already made purchases on their own. In addition, they know their parents work and have to pay bills. Therefore, this presents the best time to start teaching basic financial concepts.

The best way to do this is to start with what they already know. For instance, use classroom mathematics to teach real-world money matters. Start teaching them about financial responsibility (including the importance of having a financial goal for e.g. saving up to buy new shoes). Don’t forget to teach them about long-term and short-term gains of savings, and as well as budgeting. Also, start adding bits of how to earn money and how to multiply it.

Here are some of the basic concepts that you can start teaching:

Earning Income

Different jobs require different levels of education, skill sets, and training. The more education and training you get, the higher the chances of securing a job. However, this requires time and money. In addition, teach the children about life choices and circumstances, both of which have an impact on careers.

There are other ways of earning an income. Apart from the conventional 9-5 jobs, entrepreneurship is also an income-generating activity. Becoming an entrepreneur is all about being your own boss and offering job opportunities to others. However, owning a business comes with its own risks, and one should be prepared for them.

Social Security is also an important topic. Explain to them what it is and how it works. Use their grandparents as an example and share with children how their grandparents receive their social security payments.

Buying Goods and Services

This category includes three key areas- the marketplace, payment methods, and budgeting.

A marketplace is where people buy and sell goods. However, emphasize to your children how the marketplaces can be different, and how not all are trustworthy. In addition, there’s a lot that goes on in the marketplace that requires quick thinking to gauge authenticity that will help them to make smart decisions.

When it comes to payment methods, let your children know the different ways they can purchase goods and services. Electronic payment, debit/credit card, and cash are some of the key payment methods. By understanding these methods, they’ll know when to use one versus the other.

Budgeting is fundamental to achieving financial goals. Explain to children how a budget works and how they can include their income, expenses, taxes, and savings. Also, make sure they know that budgets are flexible, and that they can adjust their budget according to their finances.

Saving

Saving is a great financial habit, especially if nurtured from an early stage. There are three concepts to focus on here:

Banking is the first one and here, you want to explain to your children how banks, credit unions, and other financial institutions safeguard money. Also, explain to them how one can earn money by saving in a savings account.

Interest is another key topic. When banks offer loans to borrowers, they charge a fee known as interest. It’s this interest they use to pay account holders who save money with them. That leads to earning interest on savings, which may not seem like much, but it adds up over time. They should understand how interest works, what affects interest rates, and how to earn interest on the money they save. They should also know that interest rates fluctuate depending on the market.

Then, there’s investing, but that is a complex situation that should wait until after adolescence before it is discussed more fully.

Credit Usage

Credit and nation 21 loans places no credit check and they are tricky subjects that are often clouded with a lot of myths and misconceptions. However, if you start debunking these myths at an early stage, your children will have a better chance of succeeding financially.

A loan is money extended to you to allow you to make certain purchases or do other things. This means the money isn’t yours and, therefore, you’ll have to repay it within an agreed period. In addition, you’ll also have to incur the cost of borrowing—interest.

Credit cards are also a type of loan, except that only this time, you have prior access to a certain amount of money and the other difference concerns the interest rates. Credit cards have higher rates compared to other loans.

Also, your credit history and score also play a huge role in determining the interest rate attached to the loan; so it’s important to teach children about how they can maintain good scores.

Borrowing always costs money in the form of fees such as account opening fees, interest rates, APRs and late fees if you skip payments. Such fees vary from one financial institution to another, which is why there’s competition. This competition is important because it offers you a chance to choose the best deal.

Debts are also part of financial literacy and at this age, teens are ready to know the impact of debt on their finances. For starters, it’s important to evaluate whether you can afford to take out a loan. If they can’t, they’re likely to end up in debt.

Investing

Assets come first when you talk about investments. This is anything with monetary value such as stocks, bonds, precious metals, or real estate. Stocks, for example, represent small pieces of a business that you can buy. In general, when the business makes money, so do you.

Financial assets come with risks, and this means one must prepare for them. It’s also important for your children to understand that the riskier the investment, the greater the potential returns. However, this also means that the greater the returns, the greater the possible fall.

Grade 9-12

Once your children get to this stage, they start getting a taste of the real world. At this point, what’s important to teach them is student loans and other college costs. Furthermore, it’s at this age that they start seeking part-time jobs such as working over the weekends or when they go on summer vacations. Money is now their top concern and they want to know how to multiply and manage it.

Therefore, it’s important that they get the best financial foundation to guide them through this and the next phase of their lives. The following concepts will be crucial to their financial future:

Earning Income

Various factors determine the type of job you’ll choose. Some of them include job requirements, health benefits, income, location, etc.

Some may choose to start earning right away, while others may prefer to go to college. Regardless of the choice they make, it’s important to analyse the pros and cons of either route.

At this age, especially if they have a job, it’s also important to start talking about taxes; why it’s important them, how they vary depending on how much you earn, and how they reduce the person’s income.

Buying Goods and Services

Poor spending habits are a major reason why many people end up in debt. Most of the time, people acquire these habits from their parents, which is why it’s important to start teaching your kids how to be a smart shopper.

It’s also important to know your rights as a consumer because the marketplace also comprises of dishonest people with underhand business tactics. Introduce them to the Better Business Bureau, which rates businesses according to how they treat customers.

The Sooner the Better

Teaching financial literacy to children when they are still at an early age allows them to become responsible grown-ups. With this short guide, you have the resources to teach your child financial literacy and, ultimately, help them attain their financial goals later on in life.

Author

Melvin is an experienced Swimming Coach, Outdoor Teacher, and Youth Leadership Trainer with more than 8 years of experience. During his free time, he enjoys a healthy dose of reading, travelling and writing.

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