Promoting financial literacy among school students
Those of us who filed our taxes, paid our bills or budgeted our expenses know the importance of financial literacy. Financial literacy is simply the understanding of how money works in the world and the ability to make appropriate and informed personal life choices about one’s finances.
One of the most important reason that people go broke or are always struggling to meet their expenses is because of the lack of basic finance knowledge. Financial literacy has to be classified as a life skill too. It is a basic requirement to make a person competent in today’s world. One of the ways to make a person financially sound is to help him understand how to earn, manage, invest and save money. In other words, make him financially literate.
What children learn in school has a direct impact on their future. For example, if a child has cooking or sewing taught at an early age, they are more independent when they grow up, because it makes them more self sufficient. There do exist subjects like home economics which teach the basics of personal finance. But in today’s world, what is required is a subject that focuses on managing finance of an individual in such a way that there is sufficient savings and future planning. It should groom a child in a way that he is able to maneuver money to make the most of it.
Financial literacy in schools
The main aim of financial literacy is to be able to:
- Budget appropriately and meet expenses
- Assess financial advice
- Identify financial services and products that fulfill one’s needs
- Understand the risks associated with investments
These aims can only be achieved if we start at grass root level. Children are usually taught to save money in a piggy bank; this is the first step to having a financially secure future. They are given the reason of “saving for a rainy day”. This habit which is inculcated is not normally nurtured. Teaching mathematics is conventional, adding a few chapters on budgeting or spending etc will prove to be more useful.
Financial literacy can be divided into financial understanding, financial competence and financial responsibility. Teaching about these stages in progressive grades will not only help a child by equipping him with skills but also help him be more independent. Financial understanding is quite straight forward as it includes how income is generated and used i.e. understanding where money comes from and where it goes.
Financial competence includes understanding financial services, understanding financial records such as receipts and the importance of reading and retaining them and how to spend and save money. Financial responsibility is the most important part as it pertains to personal life and financial choices.
Better Money Habits
By being financially literate, one becomes efficient in creating and managing a personal budget. It also helps one understand interest and mortgage. It may also help one to dig himself out of debt and prepare for financially tough and unpredictable times. Financial problems encountered in one’s youth usually set pace for the financial future of the person. By starting small and at a young age, gathering better money habits will ensure financial security in the future.
Role of parents in Financial Education
Parents play the most vital role in a child’s financial learning. As someone rightly said, studies are not only within the school grounds, the home is where it all begins.
Let’s look at home as a small economic system, where the parents are the source of income and there are various expenses that are to be taken care of. There are some usual monthly bills and a few occasional splurges. There is also a part that goes into savings. A child grows up thinking that that parents’ spending pattern is what is “normal”. This “normality” varies from household to household.
For example, in a household, parents run the place with the help of a budget, where everyone’s need is taken care of, there is a small room for splurge included and the rest of the income goes into savings. There is another household where the expenses are not budgeted, not much of the income is saved and the parents spend a lot on what may not be needed or is not important. If compared, the children in these both households will definitely have a very different upbringing and their approaches to finance will also be very varied, but the child in the first household will know the value of money better than the child in second household. The parents may not be directly educating their child, but children do learn from circumstances.
How to approach financial literacy for children?
- Make it a part of the school curriculum
- Give real life examples and help them understand using simulation of a situation
- Get parents involved in the process
- Give the children small tasks where they can learn how to spend and how to save
- Allow the children to explore their financial freedom, because mistakes made now will help them to be financially secure in the future.
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