Why Imparting Financial Literacy to Children is Important to Developing Financial Personality
Educating children about the different facets of money is important. AFP
As conscientious parents, we are constantly trying to mold our children’s personalities and instill the best habits in them – all with the aim of preparing them for a successful life later. After all, the famous Greek philosopher Aristotle rightly said, “Good habits learned in youth make all the difference.”
What are some of these character traits that we want our children to adopt? Empathy, curiosity, sociability, resilience, self-awareness, integrity, resourcefulness, creativity… What if you developed their financial personality and helped them adopt financial management habits?
Research by behavioral scientists David Whitebread and Sue Bingham of the University of Cambridge has concluded that financial habits – including the ability to plan ahead and delay gratification – are typically formed by the age of seven years. In fact, it is rather difficult to reverse these habits later in life.
The key then is to start early and learn thoroughly. But why is it important to develop your child’s financial personality at a young age?
A study by the University of Michigan found that children as young as five years old already had distinct emotional responses when they spent and saved money, and that these translated into real and actual spending behaviors. So, starting as young as five or six years old can go a long way towards making your child a financially prudent and financially independent adult. And in today’s tech-driven world, where most things and experiences in life have taken the online route – learning, playing, having fun, shopping and more, introducing your children to Critical concepts of money have become almost indispensable.
With easy access to products and services, children are not only inclined to spend more, but are also vulnerable to online fraud. According to recent data from RBI, Indians have lost at least Rs 100 crore every day due to bank fraud or scams over the past seven years! With the largest youth population in the world and close to 40% of the population aged 13 to 35, financial literacy in India is no longer a luxury, but has become a necessity.
Financial literacy or money management shouldn’t be just about giving kids their monthly allowance or “pocket money”, keeping it in a piggy bank, using it to buy the latest PlayStation or for birthday treats . While this exercise can be helpful to get started, these early lessons in saving should be followed by practical lessons in money management, investing, and planning as children grow.
Needless to say, developing a strong financial personality will not only allow your child to manage their needs and finances in the present, but also to take charge of their future. Early financial education can greatly determine whether your child will become a spendthrift or a greedy one.
Plus, amid the looming fear of recession, job cuts and economic loss, financial independence is one of the best gifts you can give your child – the freedom to use your money when and where you really need it – education, housing, retirement, healthcare, on those fancy vacations and more. I guess it won’t be too cliché to say it, it’s a gift that keeps on giving.
While there’s no doubt that parents need to start teaching their children good financial habits early in life, the fact remains that the majority of us don’t feel particularly confident. comfortable talking to their children about money.
What is the solution then? It may be best to let the experts and trained professionals take the lead on this. Much research and many experiments later, it has been found that the use of age-appropriate projects, games, activities and simulations around modern monetary topics such as FinTech, Cryptocurrency, DeFi, Metanomics, Investment instruments such as Shares-Bonds, Index Funds, REITs are the most effective ways to educate children about money management, savings, investments and more. When children actually see their learning in action and are involved in their learning in a more visceral way, lessons tend to have more impact.
In a country like India where less than 27 percent of adults and 24% of women are financially literate, financial education is one of the greatest assets we can give our children and youth.
Educate them on the importance of money, savings, investment power, formal sources of credit, and protection from fraud and debt. And as parents, educators and responsible citizens, we can only hope this will create a ripple effect across the country, where we are growing and thriving as the fastest growing economy in the world.
The author is an alumnus of IIM Calcutta and co-founder of Education10x. The opinions expressed are personal.