This includes the ability to manage money effectively, whether it’s through saving, investing, spending, or borrowing. It’s more than just basic arithmetic; it encompasses the understanding of key financial concepts such as interest, inflation, risk, and credit. It also involves knowing how to use financial tools like bank accounts, credit cards, loans, and investment accounts. Financial literacy allows individuals to not only manage their money but also to make strategic decisions that can impact their long-term financial health.
For children, the foundation of financial literacy is essential. Teaching kids financial literacy at an early age empowers them to make smart financial decisions, avoid common financial pitfalls, and build a stable financial future. Parents and educators must work together to ensure children have access to proper financial education, enabling them to navigate the increasingly complex world of personal finance.
At Flareschool, we understand the importance of financial education for children. It provides the knowledge and skills needed to make decisions that can impact their entire lives, from early career choices to retirement planning. So why is financial literacy important, and how does it shape a child's future? Let’s explore.
The Importance of Financial Literacy
"Managing money effectively demands a sophisticated set of skills ranging from basic mathematical skills to budgeting, understanding how interest works, and emotional regulation to avoid overspending. CBI Economics, commissioned by GoHenry and Wilson Wright, reports that financial literacy can raise early-career earnings by up to 28%. It also shows that financially literate students are more likely to start their own business," explains Louise Hill, Co-founder and CEO of GoHenry.
Financial literacy isn’t just about understanding numbers; it’s about managing them wisely to lead a stable and prosperous life. According to research from Cambridge University, the financial habits children develop by age seven often lay the groundwork for their future financial behavior. By this time, kids are already developing core habits, like how to handle money, which can affect their spending and saving habits as they grow.
Sam Sims, Chief Executive of National Numeracy, notes, "Feeling confident with numbers is a vital life skill, particularly when it comes to managing your money. We're faced with daily decisions about money, whether it's paying bills, comparing prices in a supermarket, or saving for a holiday. Without confidence with numbers, it’s harder to stay in control of our finances."
Though financial literacy has been part of the National Curriculum in secondary schools since 2014, a significant gap remains. A study by the London Institute of Banking and Finance found that 82% of young people wish to learn more about money, financial products, and debt management, among other things. However, many schools face challenges in offering financial education, with factors like crowded curricula and a lack of teachers with the required knowledge hindering the delivery of this crucial subject.
Why Should Financial Literacy Be Taught in Schools?
In today’s world, financial decisions are becoming more complex. From student loans to mortgage rates, and credit cards to investments, it’s essential that children learn financial literacy early on. Teaching this subject in schools provides children with the skills they need to plan for the future, avoid debt, and stay financially solvent throughout their lives.
Stewart Perry, Director of the Centre for Financial Capability, highlights, “In order to combat the national financial capability crisis, it's vital that children develop financial and money management skills through robust financial education. Introducing financial education in schools boosts children’s money confidence and resilience, preparing them for future economic challenges.”
Yet, despite these advantages, a significant number of children still do not receive proper financial education. Only four in ten children report receiving financial education at school, which means many students miss out on learning essential money management skills.
Talking to Your Kids About Financial Literacy
Talking to kids about money doesn’t need to be overwhelming or complicated. In fact, it’s most effective when money is discussed as a regular part of life. From paying bills to shopping for groceries, everyday moments can become valuable opportunities for children to learn about money.
"Research from the CFPB (Consumer Financial Protection Bureau) shows that kids begin to develop the values, skills, and attitudes around money at a young age," says Louise Hill. "When you give kids an allowance or pocket money, you give them the opportunity to practice essential skills like planning ahead, managing delayed gratification, and budgeting."
Starting with simple concepts, like where money comes from, how bills are paid, and how to budget while shopping, provides kids with a foundational understanding of financial concepts. As children grow older, financial discussions can evolve to include more complex topics such as credit scores, loans, and the stock market.
What Are the Benefits of Being Financially Literate from a Young Age?
Studies have shown that teaching children financial literacy can have significant long-term benefits. Kids who receive financial education early on are found to be financially healthier as adults, with some research indicating that they are up to £70,000 wealthier by the time they retire.
“Financial literacy provides the opportunity for more young people to have a bright and prosperous future,” says Louise Hill. “It brings a wide range of individual, societal, and workplace benefits. We just need to give young people the right tools and knowledge to succeed.”
Here are some of the major benefits of financial literacy:
Financial Independence: Kids who understand money management from a young age become more self-sufficient and less reliant on others for financial support.
Improved Decision-Making: Financially literate individuals make informed choices about spending, saving, borrowing, and investing, leading to more secure financial futures.
Debt Management: Kids who learn about debt, interest rates, and credit at an early age are better equipped to avoid high-interest loans and excessive borrowing later in life.
Building Wealth: Financial education teaches kids how to invest wisely, save for retirement, and build long-term wealth.
Financial Security: Financially literate children can handle financial setbacks, plan for unexpected costs, and maintain stability during economic challenges.
Avoiding Pitfalls: Being financially educated helps children avoid scams, predatory loans, and bad financial habits that could damage their financial well-being.
Empowerment: Financial literacy empowers kids to take charge of their finances and achieve their personal goals.
What Are the Key Components of Financial Literacy?
At GoHenry, we believe that there are six key components of financial literacy: earn, spend, save, invest, borrow, and protect.
Spend: Teaching kids to understand the value of money and to differentiate between needs and wants is crucial for smart spending habits.
Save: Financial literacy involves teaching children to set goals and save for the future. This includes understanding delayed gratification and planning for long-term financial security.
Earn: Earning money helps children understand the value of hard work and gives them first-hand experience with budgeting, taxes, and paychecks.
Borrow: Teaching children about borrowing, loans, interest rates, and credit cards ensures they don’t fall into financial traps later in life.
Invest: Introducing kids to the concept of investing and how to make their money grow through stocks, bonds, and other investments is essential for long-term financial health.
Protect: Teaching kids how to safeguard their money, avoid online scams, and maintain good security practices online is also a key part of financial literacy.
Activities to Help Children Build Financial Literacy
Parents can use several practical activities to help their children develop financial literacy skills. For example, giving regular pocket money, encouraging budgeting, and setting savings goals all help children learn how to manage money responsibly.
Using educational apps like GoHenry’s Money Missions is a great way to teach kids financial literacy in an engaging and interactive way. These tools help kids learn important concepts through videos, quizzes, and rewards.
Moreover, helping children set up short-term and long-term savings goals teaches them the value of planning ahead and saving for the future.
Common Financial Mistakes to Avoid
It’s essential to teach children about the common financial mistakes people often make, such as overspending, not saving for emergencies, or not understanding credit.
By teaching them these lessons early on, you can help them avoid these pitfalls and develop responsible financial habits that will last a lifetime.
Financial Literacy Resources
Several resources can aid in teaching financial literacy to children, from educational apps and games to books and videos. These tools can make learning about money fun and accessible, ensuring that children grasp important concepts and develop good financial habits.
Conclusion
Financial literacy plays a crucial role in shaping children’s future. By teaching kids essential financial skills, such as budgeting, saving, earning, and investing, parents can equip them with the tools to become financially independent, make informed decisions, and secure a prosperous future. With organizations like Flareschool and educational tools like GoHenry, we can empower the next generation to take control of their financial futures, avoid common pitfalls, and build wealth over time.
