Children's Day: Financial literacy is one of the biggest assets we can empower the growing middle class with. But why is it so important and how can you teach your kids about it? Read details here
Personal finance is not a subject covered in any school but is of utmost importance. It is said that our children today are fast learners, tech-savvy and observant. So, as parents or guardians, it should be our responsibility to teach them the importance of financial literacy from the very beginning.
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Financial literacy is a basic life skill that directly impacts personal well-being. Learning it at an early age provides lots of opportunities to apply them in real life.
The basic definition
Financial literacy is the ability to understand and effectively use various financial skills. The key steps to improve financial literacy include learning the skills to create a budget, track expenses, and learn the strategies to pay off debt.
Today, we are in an era where the average age of India’s population is 29 years, making it one of the youngest countries in the world. These digitally native, young, working individuals with a flair for disruptive technologies, manufacturing automation, and internet-based services are expected to be instrumental towards propelling economic growth.
"In such an environment, financial literacy becomes one of the youth's most significant (yet often overlooked) attributes. Surely, there is a welcome change amongst the younger working professionals who are proactively engaged in their investment journeys," said Raghav Iyengar, Chief Business Officer at Axis AMC, while talking to CNBC-TV18.com.
He said: "However, it is not uncommon to see individuals with limited money management knowledge investing in the markets and reacting to every short-term market movement or personal biases, ultimately resulting in an unsatisfactory experience."
Today, money management is one of the major sources of concern among young adults. People spend most of their adulthood worrying about their finances because they rarely take the initiative to learn about money management till the first paycheck comes in.
"By learning how to navigate the pathway of money management from a young age onwards, individuals will be better poised to take today, to collectively look at some of the key reasons why we must not only involve children in financial decisions active decisions on their wealth management journeys," Iyengar said.
While there isn’t a standard approach to imbibe financial literacy at a young age, parents and teachers can experiment with fun and engaging ways (possibly through gamification or creating a kitty) that may generate a proactive interest.
"Unlike the past, where information was rarely available, today, children and young adults have all the knowledge at the tip of their fingers. Technology has made investing simpler, making it vital to introduce your child to the concept of digital finance so that they can make informed financial decisions," Iyengar told CNBC-TV18.com.
Set up a monthly allowance and keep a check
Set up a monthly allowance for your children and teach them to use it wisely. Ask them to write down everything that they spent. Discuss and review the expenses. Tell them one it can impact the monthly budget and how they should use it.
Explain the difference between needs and wants
Don't meet all their demands by buying everything they desire. When your child demands a toy at the store, tell him/her how you can use that money to buy something of utility instead.
This way, they will understand what is important to buy and what is not.
Encourage them to invest
Kids may receive cash gifts from relatives during birthdays or festivals. Teach them how to save it in their piggy bank. When it reaches a big sum, you can invest somewhere in his/her name and ask the child to participate in this exercise too.
Engage them in money conversations
Engaging them in simple money conversations from the beginning is a way to make them start thinking about money.
First Published: IST