Financial literacy is crucial, not only for adults but for everyone in the family. When you have a good foundation of financial literacy, you will have a greater understanding of money and prepare yourself for a brighter financial future. Ready to improve the financial literacy of your family? Below are a few ways to get started.
Help Them Understand How Money Works
One of the first steps in teaching your family financial literacy is helping everyone understand where the money comes from. When it comes to adults, income is most likely to come from a job. For children, their income is most likely an allowance, a part-time job, or the occasional influx of birthday or other gift money. Next, they will need to understand that the things they spend their money on are considered expenses. Get your children to understand the type of expenses associated with daily living, so it won't come as a surprise when they encounter their expenses.2
Show Them How to Distinguish Between Needs and Wants
An important thing to instill in children early is the differences between needs and wants so that they learn how to spend their money appropriately. Tell them that needs are items that aren’t easy to live without, such as food, shelter, and clothing. Explain to them that wants are items that you would like to have but do not need. It is essential that they understand that spending money on wants should wait until after they are sure that all of their needs are met.1
Let Them Know the Importance of Savings
Children need to know that, in some instances, expenses will be larger than anticipated. Because of that, savings are critical. Saving money when possible is vital to have the funds for large or unexpected expenses. With kids, you may want to start teaching them to save by showing that if they put their money away diligently, they will be able to purchase a much more expensive item they really want.2
Teach Them to Budget
Teaching your children to budget is as important as teaching them how to save. With a budget in place, they will be able to satisfy their needs, learn to put money away for savings, and only spend their money on wants when they have it to spend. Budgeting is also a crucial tool to see where your money is going and find areas where you are able to cut back on expenses if needed. To create a simple budget, you need to account for all possible income and then calculate monthly expenses. If your income is less than your expenses, more income will be needed, or expenses will need to be cut.1
Teaching financial literacy early on will help you prepare your family for the future and give them tools to help stave off financial problems while helping them pursue their financial goals.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
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1 Money Matters: Financial Literacy for the Whole Family, ABC Money Matters, https://abcmoneymatters.ca/wp-content/uploads/2019/02/MM-SeminarSeries-Financial-Literacy-2019.pdf
2 Teaching Children About Money, Family Ed Center, https://familyedcentre.org/money-matters-when-parenting/