Did you know:
- 50% of American households live paycheck to paycheck
- 44% of Americans don’t have enough cash to cover a $400 emergency expense
- The average American household’s credit card debt is $5,700
- A third of Americans have saved nothing for retirement
- 80% of Americans’ retirement plan is to keep working
(Sources: MarketWatch, Money, Employee Benefit Research Institute, Value Penguin)
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What’s the number one reason for stress among adults? It’s money – how to earn more than they spend, how to save, invest and retire debt-free. Most people spend a good amount of their adult life worrying about money because they don’t start learning about money management until they are faced with the financial realities of life.
That’s why it is crucial to teach kids about finance well before they need to start making financial decisions. You can run from your money problems, but you can’t hide. Here are seven reasons why financial literacy for kids is important and what they need to know to grow up to be financially savvy adults.
1. Any Skill is Easier to Learn as a Kid
How many of us wish we had learned skiing or skating when we were just carefree kids? Whether it is learning to ride a bike or money management, life skills are less intimidating when learned as a kid.
2. It’s Crucial to Distinguish Between Needs and Wants
Good financial habits start by being able to distinguish between what is a “must-have” and what is a “nice-to-have.” In today’s world of extreme consumerism, the need for instant gratification, and the social media bombardment of “must-haves,” would you blame people for their spending habits which send them into a dizzying downward spiral of debt?
By teaching kids how to differentiate between needs and wants, they become more aware of their choices from a young age. And who wouldn’t want their kids to be conscious consumers? We all know expensive habits are hard to change.
3. It’s Never too Early to Learn About Saving and Investing
While concepts like saving and investing may seem too abstract or daunting to teach a kid, it is surprisingly easy for them to grasp and appreciate these from a very young age. When children get an allowance, earn wages or receive cash gifts, encourage them to spend a specific amount on things they want, but also make them aware of the importance of setting aside a portion of their allowance or gift money toward a long-term goal or an “emergency want.”
Don’t discourage them from making mistakes. When they make a bad purchase by spending all their savings on something they just “had to have,” they realize very quickly how much easier it is to spend money than it is to save.
4. Kids Can Benefit from the Power of Compounding
It is essential to teach kids how rapidly their money can grow thanks to the power of compounding. They quickly learn that by investing, their money can grow manifold, helping them reach their long-term goals much sooner. This helps them practice delayed gratification, which creates the self-discipline needed to save money for college, retirement, and other expenses in adulthood.
5. It’s Crucial to Understand the Importance of Opportunity Cost
Kids need to be taught that every financial decision has an opportunity cost as money is a limited resource. So when choosing to buy something they want (say, limited edition shoes), they are also choosing not to buy something else (say, a fancy backpack) that might be just as tempting. By evaluating the opportunity cost, their decisions are deliberate and not based on impulse.
6. Retirement Planning Should Start From the First Paycheck
It shouldn’t start very close to retirement. It’s imperative to teach the younger generations the importance of planning for their retirement starting with their first paycheck. The sooner they start planning for their retirement, the faster they can grow their nest egg and maximize their returns, leading to a debt-free, self-sufficient and comfortable retired life.
7. They Can Enjoy a Lifetime of Financial Independence
When children grow up imbibing these healthy financial practices from an early age, they will be prepared to make good financial choices as an adult from day one. They will also be more inclined to learn new concepts without feeling intimidated or lost. This will result in a life of independence from unnecessary debt, excessive spending and overpriced “expert” advice. Remember, healthy financial habits will last a lifetime.
Disclaimer: The information presented is for educational purposes only. We are not financial advisors and do not provide investment advice. Please consult a qualified financial advisor before making any investment decisions.
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