You’ve heard the phrase financial literacy. But what does that mean and how does it affect your family?
The premise behind financial literacy is to educate people to have a better understanding of money and financial concepts.
When it comes to Americans and money, there are some very shocking stats available. A study found that more than 78% live paycheck to paycheck. Nearly 7 in 10 (69%) of people do not have $1,000 in the bank, according to GoBankingRates.
Shocking, isn’t it?
These are the reasons why we now have financial literacy month. It is also why many states are adding mandatory financial education to the high school curriculum.
What does financial literacy mean?
Financial literacy is defined as the understanding and education of knowing how you make, save, and spend money. It is also acquiring the skills and ability to use the financial resources necessary to make smart decisions.
Those decisions include making, investing, spending, and saving money.
You don’t have to be a personal finance expert to make reasonable financial decisions. Instead, you need to make a basic effort to be financially literate and put the personal into personal finance.
Why is financial literacy important?
If you ask different financial experts this question you will get many opinions and thoughts. And, they are all right. There is no one reason why it’s important.
But, the truth is financial literacy provides you with the knowledge you need to make smart, rational money decisions.
And, even more than that, as a parent, financial literacy is passed on to your children. They learn by example and by seeing what you do. If you spend without thought, they will too. If you make smart money decisions, your children can pick up on that as well.
Financial literacy is important not only to individuals but families as well.
Why does my family need financial literacy?
Everyone needs to know the right way to handle money. Whether that be bank accounts, savings, investing, or credit cards, everyone must understand how it all works.
While many schools are implementing financial education as a required course, it starts with and continues with mom and dad. One high school class is a start, but it’s nothing like real-life experience and application.
Most of us will make financial mistakes at one point or another. However, if you can get the knowledge and understanding of why and how those mistakes happen, it can reduce the likelihood of repeating them time and again.
If you have unchecked credit card debt and lack an emergency fund, your children will see that behavior, especially when it becomes a major problem for everyone. Not knowing or understanding your credit score and having loans you can’t afford becomes something that your kids emulate.
Young adults are essentially students to our actions. They see how their parents treat financial literacy, debt, loans, student loans, and other money decisions. That is why teaching your kids about money is one of the most important lessons they can learn.
How do I teach my family about money?
You don’t have to be Suze Orman or Warren Buffett to teach your family financial literacy. It can be in the everyday things you do.
Make them financially aware.
Money is everywhere. It affects nearly every aspect of our lives. Your kids need to see you use money and how it works.
Let them watch you use the credit card at the gas pump and pay for your groceries with cash. Take them to the bank to see you make a deposit and withdraw money.
They need to see where money flows. Have them watch you put money into your account and get cashback out. They need to see that you can’t get more money than is in your account and the bank is where that is monitored.
Set and help them reach their goals.
Goals help you have something to work toward. Your child’s goal could be to finally sink a three-pointer or ride a bike.
But, your kids also need to learn about financial goals. And to understand financial goals are not about big investments.
Financial goals can be to have more money as a down payment on a house, to buy a car with cash, or to save for college.
Start your kids out small such as saving for their bike or the summer vacation with their friend. When they have goals they better understand why you have to think about every penny that is spent.
Be open and willing to teach.
You want your child to be a successful adult, right? You continue to provide them with the tools and education needed to make that happen. But, don’t forget about money!
It can start small, such as teaching kids to save a portion of their allowance. As they get older, it evolves into using credit cards responsibly and eventually into saving for their first car.
When your child learns how to be responsible at a young age, it will set them on the path to having strong financial habits as they grow into adults.
Show your kids your money management choices. Let them know what you’re putting into retirement savings and why it’s okay to borrow to buy a house but not a great idea to borrow to buy a new outfit.
Practice what you preach.
If you tell your kids that they should not use credit cards unless necessary and you use them everywhere, it sends a mixed message.
Never tell your child one thing and then do the opposite. Practice what you preach.
Show them the budget.
Many parents are afraid to show their kids the family budget. However, it is important for them to see how it works.
Let them see how much money you make and the mandatory expenses you need to cover each month. They can see the budget only allows for $50 to dine out this week and no more.
It shows them how you manage your money and a real-life money flow chart. Your kids count on you to prepare them for the real world. Don’t let them down.
Be the teacher and a student.
To share personal financial literacy you need to gain financial knowledge yourself. Getting a financial literacy education is not hard. There are tons of great websites full of info about how to repay debt, paying off student loans, building an emergency fund, saving for retirement, and meeting all your personal finance needs.
Many financial institutions also have resources on attaining financial literacy. It’s not hard but starting can be. You first need to know your income and figure out the budgeting process.
As you do that, look at things like your credit utilization, your debt situation, and figure out what changes you need to make — all the while sharing the info with your kids. You can learn ways to save, how to pay off debt, and how to hold onto your hard earned money.
Parents can be an example when it comes to financial literacy … for better and worse. Pay your bills, save, allocate for emergencies, and your kids will get with the financial literacy program. You are responsible for giving your kids the financial capability to make smart choices.