How Financial Literacy Impact Your Kids Future

How Financial Literacy Impact Your Kids Future

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Your kids future is impacted deeply if financial literacy isn’t taught at an early age. Written by:

Here’s an alarming statistic: a three-year study shows a trend of financial literacy decline in the United States, with 2 out of 3 individuals unable to properly answer fundamental personal finance questions. While it’s a given that you need to teach your kids about financial literacy, the million-dollar question is when is a good time to start?

Surprisingly, age three would be the ideal age to start. A Cambridge University study revealed that children already absorb the basics of how their parents use money (and plastic money) to pay for goods and services as early as three years old. In other words, they learn about the basics of spending early.

Fortunately, nowadays, teaching your kids essential money lessons has never been easier. For starters, parents now have access to innovative financial tools like kids debit cards to teach kids financial literacy and how to manage their money accordingly at an early age.

The Impact of Financial Literacy

In essence, financial literacy is all about having the skills and knowledge to make positive and effective decisions about one’s financial resources. To manage money accordingly, they need to be financially literate. In other words, they need to master money management basics like investing, budgeting, managing credit, and saving.

Aside from learning how to manage their money properly, financial literacy can positively impact your kids’ future in various ways. Below are some of the powerful reasons why financial literacy is considered one of the most important life skills your kids should learn:

01: It helps them create a smart budget

One of the basic lessons in financial literacy is creating a budget. While it can seem daunting and overwhelming at first, it gets easier once they get the hang of it. At its core, budgeting is a matter of listing the income and expenses and making a plan for the money left over.

For instance, if they earn an extra $300 a month after paying all the bills and expenses, they can spend $100 on something fun, invest the other $100, and save the remaining $100. Without a budget, they might not know what to do if they have extra money after all their expenses and bills have been paid.

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02: It helps them save more

Financial literacy can also teach your kids how to minimize their spending to save more. This is especially beneficial if they are saving for a big purchase or saving money for emergencies. Having a savings account can help ensure they won’t have to turn to loans or credit cards if they need money.

03: It helps them avoid unnecessary spending

Financial literacy can help your kids assess their spending habits and see the areas where they are spending too much. It can also show them how small expenses can add up and cost them money. Reducing spending in areas that are not important can help guarantee they will have money for important purchases and other financial goals.

For example, they might realize they are spending more on takeout meals monthly. From there, they can minimize their spending in that specific area to at least once a week. Reducing unnecessary spending might save them a few hundred dollars a month—money they can either save or use more wisely.

04: It helps them prepare for their retirement plan

While the least of their concerns when they are still young, it is important that kids realize the more robust their retirement plan is, the better the chances they have of achieving their retirement goals. 

Financial literacy can help them examine their current earnings and lifestyle and see if it can help them achieve their retirement goals. When they are financially literate, they are better positioned to understand their retirement plan options and choose accordingly.

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05: It helps them invest sensibly

Investments are a great way to grow your money and wealth. However, they can be daunting for most people, especially kids. Thankfully, parents now have access to financial tools designed to teach kids about investing at an early age. When kids are financially literate, they can decide what the best investment option will be.

06: It helps them with debt management

Financial literacy can help your kids manage debt accordingly and keep it to a minimum. While not all debts are bad, they must know how debt can affect their finances, including their credit score. Financial literacy can also help them minimize certain kinds of debts to live comfortably.

For example, a $3,000 credit card balance, $25,000 student loan debt, and a $275,000 mortgage can impact their financial health and credit score differently. Financial literacy can help kids learn how to plan their budget better and deal with debt wisely, so it does not jeopardize their finances.

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How Financial Literacy Impact Your Kids Future Bottom Line

Dealing with financial issues can be very stressful. This makes learning financial literacy early all the more important. Aside from the amazing benefits mentioned above, financial literacy can also help minimize any uncertainties they might have about their financial future. This alone makes teaching your kids financial literacy truly worthwhile.

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