Financial literacy is the possession of the set of skills and knowledge that allows an individual to make informed and effective decisions with their financial resources.
On September 8 every year since 1967, we have been celebrating International Literacy Day. It reinstates the significant role that education and literacy plays in shaping the world.
The definition of literacy is vast and entails financial literacy as well. Financial literacy is the possession of the set of skills and knowledge that allows an individual to make informed and effective decisions with their financial resources. Financial Literacy lays the foundation for smart money management and financial prudence. It is an essential life skill, yet it often remains ignored at schools and at home. Therefore, a lot of young adults get into professional life with very limited knowledge on money management. Wouldn’t it be great if we could impart financial literacy at a young age? Wouldn’t it be even better to facilitate an avenue for children to practise the art of money management, independently?
Financial literacy is an extensive initiative and should be achieved in a step-wise manner by enabling seamless collaboration amongst parents, children and schools/ colleges. The three steps could be as follows:
Step 1 – Teaching the Basics of financial literacy
It would be great to begin with understanding the meaning of common terms such as Cash, Credit, Savings, Bank Account, Income, Expenses, Loans etc. A set of words that could help children understand and appreciate the talk on money and finance would enable parents to make conversations around “money” interesting for them.
Step 2 – Hand-hold and help them practise smart money management
Financial goal-setting – Parents can help children to plan their dream purchase by planning and using their allowances or pocket money prudently. Parents can give the children allowances on a weekly or monthly basis and encourage them to save towards attaining their goals, the dream purchase in this case. This purchase could be as simple as a “smartphone” that they want to buy.
Budgeting Basics: One of the most basic aspects of managing money smartly is to create and manage within a budget. Parents can help children to understand budgeting and avail digital tools to track and manage their allowances. Furthermore, they can help children to apportion their allowances across “Expense” categories such as food, shopping, travel etc.
Create a habit of “Savings”– By hand-holding their children to practice money management through goal-setting and budgeting, parents can inculcate the “savings” mindset and habit in children at a very young age. Parents can also set “saving” goals for their children and reward them on successful attainment of such goals.
Step 3 – Empower children to manage money, independently
Explore and Use Digital Avenues: There are a lot of digital avenues which can be used to give allowances to children. The beauty of such platforms is that they enable you to virtually be with your children and stay updated about their “spends” while empowering them with the much-desired ability to manage money independently. The freedom to make their own money decisions, make affordable mistakes and practise the art of money management is essential and invaluable.
Oversee their expense management – As parents can be updated real-time on the child’s expenses by using the abovementioned digital avenues, they can have better conversations around money with their children and guide them towards financial prudence, one-step-at-a-time.
Let’s take this plunge as parents and create a financially literate and prudent young India.Disclaimer: The author is a founder of Slonkit.