Financial Literacy for Kids: Why It Matters, How to Embed It

By Astrid Lynch

What is financial literacy for kids?

Financial literacy is all about understanding and being comfortable with sound money management. Budgeting, saving, investing – the earlier these key concepts are taught, the stronger the foundations for financial stability and responsible decision-making.

Teaching kids about money isn’t just about making them rich; it’s about giving them the tools to navigate a world that – let’s be honest – isn’t always looking out for their best interests. It’s about teaching them that money isn’t just something you spend – it’s something you control, something that can either trap you or set you free. So we teach them to save, to budget, to invest in their futures, and to understand the system that they’re inevitably going to face.

The Benefits of Teaching Financial Literacy Early

1. Develops Good Money Habits Early

Think of it as planting seeds. When kids learn to manage their allowance or save for a coveted toy, they’re not just counting coins – they’re laying the groundwork for solid financial habits. Early lessons in saving and spending wisely help prevent the pitfalls of financial missteps later on. Like training wheels for their financial future, it helps them avoid the wobbles and falls of poor money management as they grow up.

2. Encourages Responsibility and Independence

Imagine handing a kid the reins to their own little money kingdom. When they have to budget for a toy or decide whether to save or spend, they start to understand that money doesn’t just materialise out of nowhere. They begin to feel the weight of their decisions and learn to manage their resources responsibly. This responsibility isn’t just about money; it’s about cultivating a sense of independence that extends into all areas of their lives.

3. Prepares Kids for Future Financial Decisions

Fast-forward to adulthood: they’ll face choices like picking a credit card or taking out a loan. Early financial lessons give them a map for this journey. Understanding the basics – how interest works or the importance of a good credit rating – means they’re not stumbling in the dark when these decisions arise. They’re equipped with the knowledge to make smart, informed choices, avoiding the financial pitfalls that many adults struggle with.

4. Reduces the Risk of Debt and Financial Stress

Too many of us have had our share of debt-induced panic attacks. We certainly don’t wish them on the next generation. By teaching kids how to manage money now, they’re less likely to fall into the traps of credit card debt or the increasingly popular ‘buy now, pay later’ options.

They learn the value of saving and budgeting, which means they’re not scrambling to make ends meet or drowning in financial stress. It’s like giving them a shield against the debt demons that plague so many adults.

5. Builds Confidence and Empowerment

There’s something incredibly empowering about knowing how to handle money. Kids who understand financial basics feel more in control of their lives. They gain confidence from making smart choices about saving, spending, and investing, which spills over into other areas. It gives them a sense of agency, a belief that they can steer their own ship in a world that often feels chaotic and out of control.

How to Embed Good Financial Habits as Parents

1. Lead by Example

Kids are sponges, soaking up whatever they see. This extends to financial behaviour, too. So, let them witness you in action – making thoughtful budget choices, resisting the allure of unnecessary purchases, and planning your spending. It’s a live-action role model scenario. When they see you make decisions about why you shop at a certain store or how you stick to a budget, they’re learning by doing, without even realising it.

2. Bring Them to Financial Appointments

A big part of helping kids understand money is simply not hiding them from it. A great way of involving them in financial decisions from an early age is to bring them along to appointments with your financial adviser. Sure, much of what’s said will go over their head, they’ll probably be bored, but some things will sink in and – perhaps most importantly – they’ll see people sitting around discussing finances in a frank and open manner, not whispering about it behind closed doors as if it were still a taboo subject.

3. Use Everyday Situations

Turn routine activities into teachable moments. When you’re at the grocery store, chat about comparing prices or why you’re choosing the store brand over the fancy one. At a restaurant, discuss how you choose between menu items based on cost. By framing financial lessons in the context of everyday tasks, you help them grasp abstract concepts in a concrete, relatable way.

Obviously, moderation is key. Not every outing needs to revolve around money; there’s a difference between making children financially literate and stressing children out about money from the age of five. Balance is everything. Just pick a purchasing moment every now and again to demonstrate responsible decision-making.

4. Encourage Entrepreneurial Activities

Kids love to create and sell. Set up a lemonade stand, maybe help them sell their homemade crafts, Primary schools offer plenty of opportunities for fun financial lessons, such as fetes and fundraisers.

This isn’t just a cute activity; it’s a real-world crash course in earning, saving and managing money. They’ll learn about expenses, pricing, and the sweet satisfaction of making a profit – all while developing a sense of financial responsibility.

5. Introduce Budgeting and Saving Tools

As they grow older, introduce them to budgeting tools. Show them how to create a simple budget, track their spending, and set savings goals. They’ll be on their phone often enough, so download a budgeting app, of which there are plenty.

If they’re ready, open a savings account together or use a savings jar system. Explain how interest works and why saving can be a smart move.

This isn’t just about managing money – it’s about teaching them the art of financial foresight.

Start your kids’ financial journey today

Money is weaved through everyday life, allowing for plenty of instructive moments for our children. By starting early, we arm them with tools to make smart choices, dodge debt and plan for a future they control. It’s like handing them a map to navigate a complex, often bewildering landscape.

The lessons don’t have to be structured or complicated. Simply involve your kids in everyday decisions. And the next time you have an appointment with your financial adviser, bring them along and get their financial journey off to an early start.