We can’t stress enough how important it is to champion financial literacy. Financial education can play a role in addressing wealth disparities. People tend to make far better financial judgments when they understand how money works.

Developing Sound Financial Habits

People who performed well on financial literacy tests were more likely to spend less than they earned, to have an emergency fund, and to have a retirement account.

Financial literacy has also been linked to better retirement planning, a lower tendency to borrow against 401(k)s, and a higher likelihood of investing in equities.

How to Avoid Debt Traps

People who are financially literate are less likely to make costly blunders. Those with an increased level of financial literacy are more likely to not use services like payday loans, which have ridiculously high interest rates and hidden fees.

People who are more financially literate are also less likely to take out pawnshop loans, make only the minimal payment on credit cards, or incur late penalties on a variety of financial products.

Students who took required financial education classes were more likely to pay for their educations with low-interest federal loans and were less likely to have long-term credit card debt. Those from lower-income homes are less likely to work while in school, while those from higher-income families are less likely to take out private loans.

Improved Financial Health

Students who attended high schools where personal financial instruction was mandated had lower debt default rates and higher credit scores than their contemporaries that did not.

Students’ knowledge often sticks with them after graduation, giving them an advantage on personal financial knowledge assessments. This information then assists individuals in developing healthier financial habits. These graduates are more likely to be able to cover a $1,000 emergency, to have invested in the stock market, and have a greater chance of paying their bills on time.

Is There a Benefit to Learning Financial Literacy Early?

People are acquiring credit at younger ages, and financial habits formed in adolescence tend to last a lifetime. Children as young as five years old develop strong financial habits.

Toy marketing, peer pressure, and social media are all examples of “psychological warfare” that parents face. They are bombarding children with messages that encourage excessive consumerism and a normalization of extravagant spending. Financial literacy classes in high school are a step in the right direction, but they may not be sufficient on their own.

Try speaking a foreign language after only one semester of study. Schoolchildren are not receiving a comprehensive financial education. And parents are not teaching their children from a young age how to be good stewards of money, understand it, and build solid habits from a young age.

-Jerome Davis

We must understand that learning solid money management practices will require more than one course; it must be a continuous process.

Money management is primarily a behavioral process. It’s one thing to learn the skills; it’s another to start learning how to apply them in your daily life. It’s similar to anything involving math or reading. You get better as the years go by.

Tips to Get Started

There are numerous methods for getting children to think about money. Here are some suggestions for preparing children for early financial literacy.

• Explain what you’re doing. Engaging children with their own personal finances might help parents or guardians teach them about household finances. You may lead youngsters through the decisions you make, whether it’s a shopping trip or paying the bills. Allow your children to listen in on conversations with bankers, accountants, and other financial specialists.
• Make chores a source of income for your children. Rather than buying presents for their children outright, parents might employ a tried-and-true method of having them earn money by doing chores. They will learn the relationship between labor and income in this manner. As your children get older, consider having them put some of their chore money toward family costs.
• Engage children in job discussions that are relevant to their interests. Earning money is an important element of having a positive financial situation, and children model their career ambitions after jobs they’ve seen. This explains why so many young people aspire to be teachers or YouTube influencers. Encourage children to broaden their horizons by introducing them to persons who work in fields similar to their interests. If a youngster is interested in BMX bicycling, for example, a parent can take them to a BMX event and ask a vendor to explain what they do—most individuals are usually delighted to talk to kids.
• Make time to go over the basics. Consider sitting them down and teaching them fundamental concepts. The teachings should be appropriate for the students’ ages. For example, a 4-year-old may not understand the notion of FICO Scores, but they may understand the concept of borrowing and returning.

What are the Five Essential Principles of Financial Literacy?

Earn, save and invest, spend, borrow and protect are the five financial literacy principles. Understand your wages and perks first, then create a budget plan to save and invest your earnings. Protect your financial health. An example of this is establishing an emergency fund. Finally, be certain that you are spending carefully and borrowing properly.

Effective Financial Education

The greatest strategy for teaching financial literacy is the one that properly engages the student. Each student will have distinct demands and learning styles. Determine how a child absorbs knowledge and then devise the most effective strategy for teaching financial literacy depending on their response. Methods can include, among other things, playing games like Monopoly, participating in conversations, or granting allowances.

The First Rule of Financial Literacy

Understanding your pay or earnings is the first guideline of financial literacy. Knowing what benefits are available to you and how to take advantage of them is part of understanding your salary.

A Parting Word from Jerome…

Teaching financial literacy is essential for creating healthy habits in children so that they can make the best financial decisions throughout their life. Begin teaching financial lessons at a young age to give them a good start in acquiring these important abilities, and then continue to provide financial tutelage on more advanced topics as they become ready. The tactics you employ to instill financial literacy in your child will be determined by how your child learns and how you interact with them.