Financial literacy is making responsible or reasonable decisions about saving, spending, investing, borrowing, and earning. According to an investor education foundation study conducted by FINRA, four out of five young adults cannot pass a financial literacy quiz. These statistics underscore the need for more children to be taught financial literacy. Similarly, CBI Economics has demonstrated that financial literacy helps to raise early-career earning prospects by about 28 percent. This study further showed that students or young people who are financially literate are more likely to be entrepreneurs.
Managing one income requires a skill set that includes knowledge of mathematics, emotional intelligence, and budgeting. According to the Chief Executive of National Numeracy, Sam Sims, confidence with numbers is a non-negotiable life skill, particularly regarding money. Consequently, Cambridge University published a study demonstrating that people develop core financial skills at seven. The study showed that people develop the core behaviors that will determine their financial culture at a very young age. One major reason it is important to teach your children financial literacy is that it helps them grow into financially confident adults. According to a 2022 report by CNBC, 50 percent of American adults struggle to have $400 in savings to cover contingency spending. When children are taught how to spend and save, they learn to establish a good relationship with money early on in life, a skill useful to them as adults. This is important because finances are often precarious, and preparing for emergencies like car repair, healthcare, and property damage is important. In 2020, there was a 24 percent rise in the number of hospital emergency room visits for mental health among children aged 5 to 11. Similarly, in 2018, 68 percent of kids between the ages of eight and 16 reported worrying about their parents' financial situation. Psychologists have now concluded that money affects kids much more than previously believed when they gain knowledge about mental health. It also seems sense that economic concerns would impact children, as they can mirror adults' stress. Similarly, financial literacy is important for children because money is everywhere and needs to be managed properly. Financial literacy helps children understand that adults are not entitled to money. Instead, one works for money. This is important because it teaches kids not to throw tantrums when they do not get the toys or privileges they want. According to the Junior Achievement Survey, about 54 percent of teenagers have no idea how to navigate their financial future. This is particularly important because young adults set a trend for their financial future in their late teens and early twenties. Research by the University of Wisconsin Maidson revealed that financially literate children can avoid costly mistakes and death traps early enough in their young adult life. This means they will be more inclined to avoid payday loans with exorbitant interest rates. You must use everyday situations instead of abstract and sophisticated financial concepts to teach your children financial literacy. For instance, while paying utility bills, you can teach them the importance of budgeting and how it makes it easier to categorize expenses. Also, several mobile applications and technologies provide simplified resources.
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AuthorGary Begnaud - EVP of Janney Montgomery Scott Office in New Jersey Archives
June 2024
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