It is an unfortunate reality that many times, kids do not get adequate (or really any) financial education while in school. However, this is a fundamental survival and life skill that needs to be taught to youth from very early. It is essential that this trend changes to serve our children better as they grow up. If they don’t understand how to budget, plan for the future and manage their money, they are at higher risk of making financial missteps in their adult lives that could cause them lasting financial struggles and inhibit their futures. It’s critical that we don’t fail them as they grow.
What Is Financial Literacy?
The Culmination of Knowledge
Financial literacy is the confluence of credit, financial and debt management. It is the knowledge that is needed to make financially responsible decisions. This is an essential part of everyone’s life, and it’s important for kids to understand the choices they will undoubtedly be faced with, and the lasting impact those choices can have.
Basic Budgeting & Banking Know-How
An essential aspect of financial literacy is understanding how to properly balance a budget and checking account, write physical checks when needed, and even simple knowledge such as the difference between a cashiers check and money order, and what those two items may be used for in their future.
Understanding Credit Cards & Loans
While credit cards and loan offers can be extremely attractive, it’s important that kids realize how these programs work and the dangers and implications of getting into debt at an early age. It needs to be more clearly expressed that credit lines are not free money and that they need to pay it back. They also need to understand what interest rates mean and how much more they could end up paying if they don’t pay off any debt incurred quickly. This is becoming an especially critical topic with the rising rates of crushing student loan debt some young people are getting into for their educations, without considering the long-term impact of repaying the mountain they borrow.
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Why Is It so Important?
More Financial Decisions Than Ever Before
In the past, many people would rely on pensions when it came to retirement. This is a thing of the past, and not many companies even offer this option any longer. Consumers weren’t involved in this benefit and did not have to monitor or contribute to it. Now, retirement planning is something that it’s imperative for younger generations to understand, as most companies instead offer 401K plans. They now need to decide how much they want to contribute and make their own investment decisions.
Investing & Savings Choices
There are many more complex options when it comes to investment and savings products. Understanding what the different portfolios consist of, what ‘risk’ or ‘aggressiveness’ means in these terms and even a basic knowledge of what some of the many different options when it comes to interest rates and maturities may be can help them make smarter, more informed decisions as young adults.
Social Security Isn’t a Promise
In addition to pensions, past generations were also able to depend on Social Security as a significant part of their retirement income. It is debatable whether or not this will be available in the future for younger generations. Even if it is, the amount paid will not be enough to live on, so other options will need to be planned for in order to live comfortably and happily in retirement.
Living Longer = Larger Retirement Required
The great news is that with the advances in modern medicine, people are living longer than ever before. However, with a longer lifespan also comes a longer retirement and therefore, more money needed to retire. Teaching school-age children that they need to be consciously aware of living in retirement and plan accordingly is essential, especially considering they will need to plan on having more money for retirement than their parents needed.
There are many more factors that can affect the global marketplace than in the past. Things are always changing due to technological advances like electronic trading. This can make it difficult to create a financial plan that can stand the test of 30 or 40 years because the world advances far too quickly.
There are so many companies out there to choose from including credit unions, banks, insurance firms, financial planners, mortgage companies and brokerage firms. Choosing between these many options and specialties can be very overwhelming and giving our children a basic knowledge of what each specialty in the financial industry is suited for can help prepare them for these decisions in their future.
Why It Matters to Our Next Generation
Providing Them with the Financial Foundation to Thrive
We all want the best for our kids, so it’s crucial for them to understand how to budget and plan for the future. We want them to be able to fend for themselves and know how things work in terms of financial planning from a young age so they don’t make decisions as young adults that they are suffering from for years to come.
Helping Them Sidestep Common Financial Pitfalls
When kids understand how money, budgeting, and debt works, they are more prepared for the future and the major decisions they can legally make at the young age of only 18. Not only can they prepare for retirement once they get their first job offering 401k or similar benefits, but they will more in-depth understand the elections they are making and the enrollment process won’t feel so overwhelming. Additionally, they will be ready to avoid jumping into lots of credit card and personal loan debt and maintain a household budget. It is well known that some companies that offer loans can have often nearly predatory lending and advertisement practices to try to get consumers to agree to something they don’t even fully understand, taking loans they can’t repay with impossibly high-interest rates. We must take control of arming young adults with knowledge against these practices and how to protect themselves.
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Financial Literacy Must Be a Cornerstone of Education
The point remains that to prepare our children for planning for their own futures, they need to learn the importance of money and implications of debt at a young age. School is an excellent opportunity to teach our next generation the skills of financial decision making, budgeting, and banking basics.
We want to give our kids the best tools so they can succeed in their lives. A vital piece of that is adequate financial education at a young age. This will help them as they separate from their parents and venture out into the world on their own, full of overwhelming choices that can have lifelong consequences.