We all want the best for our children and students. Seeing them safe, happy, and satisfied is one of the most gratifying experiences ever. But, how do we ensure they achieve happiness and life satisfaction? While there are many things we should do, or not do for that matter, studies are clear on one thing: teaching kids about money ensures their future well-being!
Unfortunately, more evidence for this claim comes from statistics showing that many millennials (aged 18–30 in 2016) have troubles with financial capability and independence. Of course, we can blame the economy, but it surely doesn’t help when 81% of our youngsters feel like they don’t have a solid grasp on financial concepts such as credit or debts (Stefan Stolba, 2019).
What can we do to address these issues? The silver lining among these distressing findings is that children are, in fact, keen on learning more about finances, so we can hopefully change their future by taking initiative and teaching kids about money from a very young age.
Keep reading this article to learn about all the benefits associated with financial literacy for kids that might inspire you to take action.
Why Teaching Kids About Money Is Important
We’re here to answer the question of whether (and how much) teaching kids about money is important, especially when it comes to children younger than seven years old.
We can all agree that middle schoolers or high schoolers need to learn to be responsible and manage their finances (allowance and first earnings) better. But, the truth is that by the time they’re in middle school, or worse, high school, kids have already set their money habits. In fact, research has shown that children are able to grasp money concepts by the age of 3 and have money habits set by the age of 7.
Together with the results from other studies revealing that nearly half of the parents surveyed (T. Rowe Price’s 11th Annual Parents, Kids & Money Survey) miss on opportunities to teach kids about money and finances, we begin to understand the grim picture that is our reality.
If parents weren’t reluctant to talk to kids about money and we had better financial programs in schools, we could raise the next generations to have financial acumen for a better future.
And, to everyone who still isn’t convinced of the importance of financial literacy for young children, let’s explore eight different benefits of teaching kids about money.
The Benefits of Teaching Kids About Money
Financial literacy is associated with making better financial decisions and fostering responsible money habits. But is that all?
As we’ll see, teaching kids about money does a lot more for children’s future and cognitive development than you might anticipate. When kids are well informed and truly grasp financial concepts, their critical thinking improves, they’re are less impulsive, and have the ability to stay true to long-term goals, rather than giving in on immediate pleasures.
Discipline and Critical Thinking
The first benefit associated with financial literacy is improved discipline (finance-wise) and stronger critical thinking skills.
Knowing (in theory and through practical experience) the value of money, how hard money is earned, and how it can help us achieve our goals, makes children more disciplined. They’ll be encouraged to keep a financial journal (or something similar) that enables them to track their progress, savings, and expenses. This, in turn, will make them conscious about their spending habits which leads to more control over their own behavior.
Along with this newfound control inevitably follows critical thinking, too. To be able to control their impulses, set long-term goals, manage money, and make smart spending decisions, kids will have to think critically about their needs, wants, goals, and market offerings.
Protection Against Financial Ruin
The most important benefit of financial literacy, however, is the protection it offers against financial ruin, which shouldn’t be a surprise. Poor financial decisions, which stem from financial illiteracy and destructive habits, can bring a number or negative consequences for young people. Some of these problems or vulnerabilities include bankruptcy, mortgage crisis, students’ loans, debts, and financial frauds, to name a few.
These issues are not only life-altering but also come with disastrous psychological consequences for young people.
Fortunately, studies show that gaining financial literacy can be effective protection against financial ruin. Kids will make smarter decisions even before they leave their parents’ house. This is because they’ll have time to practice financial independence while still having a safe net to fall on when they make mistakes, turning them into a learning experience rather than a traumatic one.
Delayed Gratification and Thinking About Long-Term Goals
Recently there was this TikTok trend where parents leave their children alone (for a couple of minutes) with a treat promising them another one if they resist eating the one in front of them while they’re gone. The inspiration for this trend comes from the ingenious social experiment done by psychologist Walter Mischel back in 1972.
Today, the experiment is popularly known as the “Stanford Marshmallow Experiment,” and it still stands as a powerful reminder that children’s ability to forgo immediate gratification in exchange for a larger but delayed reward predicts their future in an interesting way. Those kids that can resist the temptation in exchange for a larger reward later in time were found to have higher SAT scores, better social lives, more self-reliance, and more self-confidence later in life.
How is this related to financial literacy and money? Well, spending behavior is driven by the same reward systems in the brain, which tells us that learning how to resist the temptation to spend the money now might predict children’s financial future later in life.
When kids practice delayed gratification, they practice patience, discipline, will-power, and dedication to previously set long-term goals, which is key to success in all aspects of life.
Smart Financial Decisions Leading to Financial Success
In the previous paragraph, we’ve mentioned how teaching kids about money impacts their character and behavior. Now, in this paragraph, we’ll add on the previous benefit and talk about smart decisions that lead to financial success.
Namely, the mechanisms that we’ve explained so far are the basis of smart financial decisions. To make such decisions, kids need to think critically, restrain from acting impulsively, be patient, think about their long-term goals, and remain dedicated until they achieve those goals. Lacking any of these elements will compromise rational decision-making and might lead to poor choices.
And, we’ve already covered how poor choices lead to financial ruin. But, is the reverse true? Do smart financial decisions lead to financial success? Yes! Of course, many other things influence the financial situation, especially in the beginning of one’s financial independence, but making smart financial decisions makes all the difference!
Better Earning Potential
One of the ways that young people can achieve financial success is by developing a better earning potential. How is this achieved through teaching kids about money?
Well, having financial literacy even before entering elementary school (or high school), kids can consciously make better choices that increase their earning potential. To illustrate, they’ll probably consider the value of their grades from a financial point of view, put more effort into some subjects knowing they’ll develop valuable skills needed for earning more money, or even choose a career path more carefully.
Bound on this, knowing about money allows kids to take on extra projects with specific goals in mind, learn how to do networking and negotiating, and strive to develop skills for positions that have a good income.
Knowing about money can help kids avoid debts, which is one aspect of financial ruin. We decided to give this special attention because of the fact that there are more than 44 million young people in America paying off their student loans at any given moment.
By no means do we want to allude that taking a student loan is a bad thing. On the contrary, this practice can change some students’ lives for the better, but not everyone’s! The main takeaway is that financial literacy can help students make better decisions, so they can carefully decide whether taking a student loan (and which loan) is a good idea.
Many students never recover from this financial setback because they didn’t plan ahead or they never made a backup plan if their initial strategy fails.
As sad as this sounds, it’s more and more common, which begs the question “Do students have the financial capacity to truly understand the implications and long-term consequences of making such a decision?” Better yet, “Are students familiar with all of their options and alternatives?” As we’ve seen at the beginning of the article, current studies say no, they don’t.
For these reasons, educating kids about money and finances can help them better understand the current economy and make realistic evaluations of their options and risks associated with those options.
Smart Spending Choices
Another aspect of financial behavior that might lead to financial ruin is reckless spending and making poor choices when it comes to daily expenses. While this might sound too trivial to have a significant impact on one’s financial state, it should not be underestimated.
Living beyond one’s means is a very destructive habit that directly puts one’s finances at risk. And, being financially illiterate is definitely a risk factor for spending more than one can afford. Such reckless behavior will increase one’s debt, make them incapable of saving money, and even lead to the inability to pay rent or bills.
Make sure to teach kids about the value of money and hard work from a very young age, so they can internalize and make those lessons part of their identity.
Finally, the last benefit that comes from teaching kids about money is raising responsible kids. In this context, responsible means that the child is capable of managing their money/allowance in a productive way, which is usually in their best interest overall (long-term).
Being responsible also includes the process of saving money for the purpose of protecting oneself and the thing they have or want to have. It’s the ultimate act of restraint because it sometimes requires the child to postpone the accomplishment of their goals under specific circumstances. For example, let’s say that the child has been saving money to go to the movies. However, just before the movie date, they find out that everyone in the classroom is chipping in to buy the teacher a birthday present the next week. Going to the movies was their goal and they’ve been saving money, however, this unexpected expense takes precedence and forces children to postpone their movie plans – assuming they’re responsible.
This silly example is just a simple way of illustrating a relatable situation for children where they’ll have to go against their plans and act responsibly with money even if it means postponing their long-awaited reward. It’s a challenge, especially for very young children and teenagers, with which financial literacy can be of great help – not just for resisting and being responsible, but for making smarter saving strategies.
Before You Go
In this article, we’ve learned that teaching kids about money is important because it equips them with an understanding of crucial financial concepts that inform their financial decisions in daily life. Beyond that, becoming financially literate improves critical thinking, discipline, money responsibility, the ability to make and maintain long-term goals, and ultimately have a better earning potential. Together, all these skills will set students up for financial success.
And, who doesn’t want their child to have financial stability and independence? We know you do, which is why we urge you to check out the article we’ve dedicated to some of the most amazing lessons and activities on financial literacy for kids. All of the activities are incredibly fun and you can easily implement them in the classroom or in a homeschool setting.
Finally, don’t forget to also visit our blog, where we keep all of our insightful articles and guides on many different topics regarding children’s education. We regularly explore new trends, share innovative ideas, and evaluate common teaching practices, which is why it’s good to subscribe to our newsletter to make sure you never miss out on anything!
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