The world as we know it has gone through some tremendous changes during the last couple of years. On a financial level, people across the globe have become anxious and stressed about the future. They do not know if they can weather the storm or whether they are prepared for a financial emergency.
Parents are among the people who are finding modern times the hardest as they fear for the well-being of their children. Children who are not exposed to financial literacy have a very distorted understanding of value. Kids who get everything that they want do not understand the value of hard work and will more than likely fail in finance as adults.
However, if financial freedom is what you wish for your children, then there is no better time than the present to start to teach them about financial literacy.
What is financial literacy?
Financial literacy has everything to do with finances, from personal to corporate finance, taxes, and investment. It incorporates every aspect of finances that a person might encounter during his or her life. Depending on your generation, you might never have been involved in your family’s finances.
The Baby Boomers and Generation X were generally kept in the dark about family finances because it was something for the adults to maintain and manage. However, keeping finances out of reach of your children is not only near-sighted but detrimental to their future financial success. The sooner a child learns about the ins and outs of finance, the better they will be able to manage their own finances when they are older.
Knowing what finance is all about is not the only aspect of financial literacy. Being able to use various financial skills and instruments makes up a large part of financial literacy, even the ways in which you make your money revolve around financial literacy. New streams of revenue, like how to become a YouTuber, are constantly being developed and being financially literate will allow you to pick up on these streams and enrich yourself.
The more versed you are in financial matters, the better your relationship with money will be. Almost every aspect of your life is touched by finances and if you are in control of the financial aspects of it all, there is nothing that will be out of reach.
Financial literacy gives you foresight
According to a finance thesis writer, the biggest benefit to starting with financial literacy at a young age is that it prepares you for what is to come. As the world evolves, so do financial structures and when you teach your children how to be financially literate, they will be able to navigate the winds of change as they happen. Whenever markets change, they will be able to adapt and make more sound investment decisions.
What is even better is that if they are taught well, they might even be able to spot future changes and be ahead of the curb. There are many people around the globe who are now only starting to notice cryptocurrencies, but a couple of hundred dollars invested ten years ago could have been worth millions today. Financial literacy enables your children to view the financial world with open eyes and see opportunities when they start developing.
Managing the taxman
Many adults find themselves in hot water with the IRS or find themselves in a heap of hopeless debt because they never learned about taxes and interest rates. Teaching your children the basics of tax and interest will allow them to manage their personal finance much better.
Most adults find this aspect of finances so daunting or completely misunderstand it that they must pay someone else to handle it for them. Having a good grasp of these day-to-day concepts will allow your children to save money and make wise investments.
Taking care of the basics
When it comes to mortgages, student loans and household budgeting, the sooner you start to teach your kids how to manage these finances, the better. These are expenses that most people will have to manage and if the budgeting around these expenses are not done properly, then a ship can quickly take on too much water and sink.
Financial literacy teaches your children how to calculate their financial means and make plans to operate within those means. The best part of starting to teach them when they are young is that they can fail in a safe environment. When it comes to finances, burning your fingers is often the best way to learn and avoid future situations that can compromise your financial stability.
Handling financial emergencies
Financial emergencies happen all the time. The stakes might just vary. Whether you are only responsible for household finances or corporate finances, there will be times where intervention and problem solving will be needed.
When your kids are still living under your protection, they can learn how to deal with financial emergencies more effectively because their stakes are not necessarily a matter of life or death. The level to which you want to expose them to financial turmoil is up to you, but in every situation, there will be an opportunity to learn and grow in financial understanding and management.
An excellent way to teach your kids how to deal with tough situations is to give them some rope and have them build up some debt. Once their debt is substantial, you can pull the plug and guide them on how to develop a debt repayment plan. The added bonus of this strategy is that it teaches your kids the time value of money.
Tools to teach financial literacy
The best way to teach your kids about financial literacy is to let them start a small business of their own. It can be anything from breeding fish to starting a veggie garden. The reason why this is such a good platform to teach from is that it covers so many aspects of financial literacy.
Monopoly used to be a game that all of us used to play, and there were some key takeaways from the game that we could have used, but starting a legit business is infinitely better. As a parent, you can play the role of the bank and fund the project. Everything from initial start-up funds to loans will run through you. Your kids will soon learn the meaning of interest on loans, drawing up a budget and tax.
If the business is run like a real-world business, your kids will be exposed to all the aspects of finance that adults are confronted with every day. They might even surprise you and grow their business to something much larger. The sooner you can get them going in a business, the sooner they can start experiencing the world of finance.
The bottom line
The sooner your children are exposed to financial literacy, especially if they can start their own business, the sooner they will learn the value of money. When they see what hard work goes into making money, they will make much smarter decisions on how they spend their hard-earned cash. The sense of pride that they will experience will be able to carry them into adulthood and give them the ability to innovate and become rich.