HOW TO CREATE YOUNG FINANCIAL GENIUSES - PT 1
It begins at home! Finance is something which we are surrounded by and interact with on a daily basis. Yet, many people don’t learn about personal financing until they have already entered adulthood, due to its common negligence in school curriculum. Thus, it is the responsibility of parents and guardians to educate and prepare our children for the future.
By Martina, co-founder of Bifrost - Oct 29 2018
What is money and how does it work as a medium of exchange in society? Kids begin exploring questions like these from a very young age. The concept of money is largely introduced in the homes and it develops into understanding of earnings, budgeting, and investing. As kids grow up, the basic counting knowledge of 3-5 year-olds turns into understanding of loans around senior year of high school to prepare for university studies. There are many financial terms to learn, and to avoid it being too overwhelming, while preserving the interest in the subject, it is important to consider the timing of when to introduce these topics. Talking about credit reports with a four-year-old might be a bit excessive.
The possession of skills and knowledge to make effective and informed financial decisions is known as financial literacy. The focus tend to be on personal financial education, rather than viewing the inabilities of many to manage their own finances as a broader social concern. Taking into account the successive financial scandals, such as the 2008 financial crisis, it would be preposterous to blame the individual. Therefore, it is argued that financial literacy should include bank and governmental behaviours as well.
Parents’ and Guardians’ Responsibility
While literacy is a fundamental part of the education system, financial literacy is often left out. However, there is a movement to include more finance-related courses through elementary- to high school. Yet, parents and guardians remain the primary educators in teaching children the necessary skills and knowledge to develop strong and life-long financial expertise.
Many adults avoid this responsibility as they themselves are unsure about their own finances. More than eight in ten parents believe it is of high importance to teach children about money, yet one in six are not comfortable initiating this conversation. The experiences and perspectives held by parents is something which children do not have. Thus, sharing this knowledge, regardless of your confidence and expertise of personal finance, will provide basic financial insights and initiate the money conversation. Money, like many other subjects, will to an extent be discussed outside of the home; commonly with friends and through social media. This may seem harmless, but there is a risk of misinformation. Thus, it is important to carry out this discussion in the home, and there are many ways to educate your children about finance. Financial experts recommend two things; to start early and to talk often.
To provide children with an allowance can have many benefits, including the knowledge of budgeting. Budgeting is a fundamental concept in personal financing and by providing kids with an allowance, it will teach them how to handle their own finances and plan for larger purchases. However, deciding the amount to give the children as well as what will be paid for directly by the parents, can be a difficult decision to make. These decisions will be unique to each family depending on their own financial standing as well as their goals.
Clothing could be a good starting point; where you asses how much you spend on clothing for your children, then provide that money in allowance so that they can spend it on clothes as they wish. This is a simple starting point and can be integrated to other products or services as well, including cell phones, social activities and travels. It is important to be completely clear about what the allowance covers. In regards to clothes, does that include sports wear and school uniform, or is it strictly leisure clothes? To make certain restrictions on what is not allowed to purchase may be of interest as well.
It will take time for the child to learn how to budget. Therefore, it is important to consider the time scope. A year long allowance may result in all money running out by the first few months. Therefore, a good idea is to start off with frequent payouts and then begin spreading them out over time. It is recommended to start giving your kids an allowance when they begin grasping the concept of it, which is around five years of age. This will introduce them to the concept of money and budgeting at an early stage.