What Is Financial Literacy, Really?


March 29, 2019

Money makes the world go round—so why aren’t kids learning financial literacy from a young age? And what is financial literacy, really?

Although more schools are teaching personal finance classes, many are still failing to produce financially literate high school graduates. Only 5 states graded “A” for their efforts in 2017.

But what age should financial literacy be taught? And should it be taught at home or at school?

If we start in highschool, then we end up surpassing the age where kids form their money attitudes in. A recent study showed that children already have emotional reactions to spending and saving money at the age of five. And, that translated into actual, real-life spending behaviors.

When kids start having to make financial decisions—taking out student loans, buying their first car—they’re unequipped to make healthy choices. Also, you can start teaching financial literacy to kids at home.

What is financial literacy, anyway?

Financial literacy isn’t just about money smarts. It’s about developing the behaviors, skills, knowledge, and capabilities that will enable your child to grow into a responsible adult.

Financial Literacy: Behaviors and Skills

Some of the behaviours and skills taught through an early financial education to kids are directly related to money. But, for some, the direct link to money isn’t as clear at first. Many of these skills also apply to the bigger picture with benefits across other areas of your child’s development.

Here are some skills and behaviors that are not so clearly linked to money matters, and can be used in everyday life: Patience; setting and ranking goals; planning towards a specific lifestyle; exploring personal interests; differentiating between needs and wants, and prioritizing between them; and identifying emergencies.

Foster these kinds of positive behaviors and skills early on through financial education, so you can reap the benefits in other aspects of your child’s growth.

Also, if you get your kid involved in researching money-related topics like investing or budgeting, you’re teaching them how to investigate a new topic and pursue what they’re curious about, not just money

While your kid’s 18th birthday might seem far off, starting early is essential. Growing up in a financially literate household is key. Also, the benefits of a financial education reach far beyond money-specific topics. Chances are, if your kid is on track to make healthy financial choices as an adult, they’ll also develop behaviors with present-day benefits.  

Financial Literacy: Knowledge

Starting with basic concepts is important when learning, and the same goes for financial literacy.

The knowledge that is taught through financial literacy to kids and adults ranges greatly. For kids, basic concepts are introduced, such as what banks are and how they work, the difference betweens a savings account and a checking account, and what interest is. Other things like what fair trades are, what an emergency is, and the different types of jobs are also important.

Financial Literacy: Capabilities

So, once your kids have learned the basics, how can your kids apply them all to real life?

According to the National Financial Educators’ Council, financial capability is:

“[T]he combination of attitude, knowledge, skills, and self-efficacy needed to make and exercise money management decisions that best fit the circumstances of one’s life, within an enabling environment that includes, but is not limited to, access to appropriate financial services.”

The National Financial Educator’s Council (NFEC)

Therefore, financial capability is being able to handle, manage, and earn money, as well as make smarter financial decisions, and earn. So for kids, it includes helping them learn how to save and giving them opportunities to earn. Also, it is learning what to do with that money. Things like allowances, age-appropriate job opportunities, and allowing them to have their own bank accounts, are just some examples of where to start.

The benefits of building up your child’s money-smarts extend far beyond their future financial life. The skills and tools they develop will help them grow into responsible adults across the board. Not to mention the short-term benefits of a patient, goal-oriented kid!

So, this Financial Literacy month, no matter their age (and especially if they’re young!) So, start the process of educating your child in all things money by making the effort to incorporate it into your day-to-day life.

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