An ability to understand and manage money is a vital life skill and one that should be instilled from an early ago. Children may not be financial experts. However, when they learn about the value of money from an early age it helps to set them up for the future. 

What is financial literacy?

Many children are not taught about money properly either at home or in school. In fact, as few as a third recall being taught about money in school and fewer at home. This is a gap that needs to be filled before it is too late. Financial literacy is simply an understanding of money and its worth. Teaching financial literacy sets your children up for a better more financially stable future .

While schools are recognising more and more the importance of teaching real world mathematics to students, there is still a low level of financial literacy amongst large states of the population. While many people argue that schools have a responsibility to teach children about complex financials, it is also a good idea to begin teaching your children about financial literacy early.

Lack of financial understanding can be problematic later in life. Those with a low level of financial literacy are more likely to face heavy debts, and struggle to save for retirement. If we teach financial literacy to our children early then we are setting them up for life, giving them the tools to navigate common financial situations.

Review your habits

Financial literacy can begin by taking a look at your own finances. Demonstrate good money management to your children. That way, they can learn by example. 

It’s important to remember that our children learn by watching us. Should you be a person prone to making impulse purchases or you refrain from talking about money at all, your children may pick up on this. Talking about money openly in front of your children, for example discussing budgeting decisions and savings, can be really helpful. Open communication can lead to discussions about money that can help children understand the financial world more thoroughly.

Start with the basics

It’s never too early to learn about money, the younger the better.

In some ways, it’s incredibly easy to start learning about money and budgeting. There are plenty of board games available, Monopoly for example, that can help open discussions about financial strategies. In some cases your children may not even realise they are learning.

Introduce the value of money at an early age by offering your children a set amount and discussing what it might pay for. Set rules of spending and discuss the importance of saving. These basics will help them as they grow older. 

For example, if you wanted to explain opportunity cost to a child, you could use a simple example. Phrases such as “if you buy this today you can’t buy this tomorrow” work well in such cases.

If you’d like to discuss more complex concepts for older children, it might be worth showing them budgeting apps or encouraging them to earn some money either in the home or with a part-time job.

Additionally, the beauty of compound interest means that saving a little early on can mean children grow a saving pot significantly over time. You can explain this to your children, showing how their money can help them earn more money in interest. Take a look together at Junior ISAs or other savings accounts and see if they can work out which one would be better for them.

Start an investment account for your children 

Hands on experience as they grow older is vital. An investment account is a great way to learn about savings. A junior ISA a good tax efficient way to invest or save for your child’s future. This is something you can do from the comfort of your own home. It makes a very good learning experience.

Why is financial literacy so important?

When you teach children about money from an early age it provides them with a better understanding. Additionally, it has the potential to mean a more solid financial future. It gives them the skills and knowledge that will allow them to make better money choices in life.

It also offers the chance to create smarter spendings and savings habits. When these are established early on in life, they will become habit that will stay with your child through their life. Those children who understand financial concepts and ideas have a great degree of confidence when it comes to independent management of their own money. This is a crucial life skill.

There are some cool concepts that you should be considering when it comes to teaching financial literacy to your children these are:

• Budgeting – introduce the ideas offsetting and planning financial goals
• Saving and investing – teach the idea of saving both in the short and long term this will allow your children to think about bigger goals
• Earning money – teach the connection between working and earning money you can do this by giving your children simple tasks and giving them financial rewards for this
• Needs versus wants – your children need to understand the difference between their needs and their wants this will help them to make better informed decisions about their spending
• Banking – introduce your children to the idea of banks and how money in their bank accounts can be managed. You should also explain the benefits of saving properly
• Giving back – it is a good idea to introduce the idea of giving back through charitable donations as well this will help your children with social responsibility and empathy

Helping your children for life

In short, teaching financial literacy early will help your child to make an informed decision about not only their finances but their education and career. Explaining concepts such as student loans, salaries and taxation, you can help them build a strong financial future.