Financial literacy is about knowing money – why it’s needed, what it can do, how it’s made, how it should be spent and the different forms of it.
Money is very important in today’s world. We need it for pretty much everything – food, bills, medication, entertainment, travel, insurances, hobbies and many other things. We need it to maintain our lifestyle.
Knowing money is not about getting a good job and being able to earn a decent income from that job. It’s much more than that because you can earn a lot of money from work but still have financial problems as a result of poor financial knowledge and decisions.
Children are the future of our world. As part of their path of growing up, they need to learn. They need skills and knowledge to shape their adult life. Unfortunately, financial literacy is not thoroughly taught in all schools. Some financial terms that we deal with in adulthood are:
- Income
- Expenses
- Assets
- Debts
- Deposits
- Credit scores
- Interest rate
- Repayments
- Insurances
- Investments
- Rate of return
- Budgeting
- Taxes
- Retirement
How many does your child actually understand?
Money doesn’t guarantee happiness. However, we can conclude that lack of money brings both emotional misery and low life evaluation, as stated by Nobel Prize Winners Angus Deaton (economist) and Daniel Hahneman (psychologist).
Knowing about money is a life skill. It’ll help your child make better financial decisions. Financial independence and success depend on good financial decisions.
Here, we’ll explore other reasons that show why it’s important to have financial literacy at an early age:
Inflation
Inflation means the rise in the prices of goods and services. Over time, it causes money to depreciate. Think about the cost of a loaf of bread 30 years ago. Think about how much it costs today. The cost of living is always rising. $50 in the future will not get you the same things you can get today for $50. If your money is not catching up with inflation, it can be a problem.
Longer life spans of people
People are generally living longer as time goes by. According to WHO, global average life expectancy increased by 5.5 years between 2000 and 2016. This puts a strain on the welfare system because more and more people will claim for age pension payments when they retire. As the population ages and more people retire from the workforce, it’s hard to guarantee whether the same level of welfare will still be available for our children in the future.
Technology
Technology is constantly changing the world. The world we live in today is different compared to the past. Look at the smart phones today. 30 years ago, we wouldn’t have imagined what they can do today. Technology is also shaping our lifestyle. It’s changing the way we spend money. We didn’t have app stores that sell apps back in the days. We also couldn’t pay for things with our phones. Technology has made spending money much easier. So, knowing about money has become even more important.
Too many choices today
Banks, credit unions and other financial service providers are constantly promoting new products and services for their customers. Look at the amount of savings accounts, home loans and investment accounts that’re available nowadays. It looks like there’ll just be more and more in the future. Without adequate financial literacy, you can easily become confused and make wrong decisions.
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