Are Today’s Kids Financially Literate?
This is an article “Are Today’s Kids Financially Literate?” by Marc Primo
Kids have come a long way from selling lemonade in the front yard to becoming today's online influencers who potentially earn more than their parents' combined income. But we can all agree that the teen years are when some of the most critical life transitions happen – and that includes money matters.
For most parents, knowing how to teach children the tenets of financial responsibility is similar to giving a drowning man a lifesaver when your own boat is sinking. Especially during these difficult times, adults still struggle to decode the financial system even if kids are now becoming a considerable slice of the global consumer pie. Experts project that by 2026, Generation Zers will comprise 40% of the total consumer population in the world. Without proper guidance, today's kids can be tomorrow's unsuccessful adults, attempting to swim the economy upstream without even wearing a life jacket.
With the right perspective and knowledge power, parents can train their children to practice the best money habits at their age right now. From discussing financial concepts to hunting for the best opportunities to grow their savings, here are some tips that can help ensure your kid grows up to be financially literate.
The joys of earning
One funny meme shows a young adult having a conversation with a monkey. The boy says, "At least I have a job with a salary, and you don't," to which the monkey replies, "I may not have any money, and neither do you." It's funny in many ways, but mainly because we know that many of today's adults still struggle to get rid off debt that what they earn from their jobs automatically becomes their creditor's money. But is it really that funny than it is sad? On average, today's millennials owe at least $87,448, according to an Experian debt survey.
Here's an idea: teach your kids how to properly earn money from a job by opening up their own savings account and then help them sort out a financial goal. Make sure you clearly explain how the money they earn and save can either vanish in exchange for something that can be categorized as a 'want' instead of a 'need', or increase in exchange for an investment. Try offering them a rewards system for the work they put in. However, do tell them not to splurge and exhaust the piggy bank because they'll have to prepare for spending for their needs in the future, and sometimes, salaries can come to a halt.
You can further teach your kids how to earn more by asking them what they like to do so that they'll love their jobs or ventures and seek self-improvement. While you're at it, expand their knowledge through training. The best earners are always the ones who love and know what they are doing. Once they get their first paycheck, help them interpret taxes, differentials, and other such details so they can compute their net pay on their own in the future.
The art of self-control
Anyone who's ever been a kid knows how difficult it is to pass the marshmallow test. However, by constantly practicing self-control, today's kids can develop the right skills that could turn them into millionaires in the future.
There's an art in learning the ways to delay gratification. Teaching them to save their allowances and Christmas cash to build an online business and make some profit during their spare time is always better than blowing it all on a PlayStation5.
The main secret to keeping one's personal finances in order is avoiding debt through credit and preventing impulse buying when the craving bug bites. Of course, we all have been through life's many marshmallow tests, but the sooner you teach your child a surefire system that keeps their spending in check, the better they can control their purchasing habits.
Most kids who do not learn self-control won't know how to use their credit cards once they get their hands on them. Soon enough, interest piles up while their liabilities bury their net worth in the ground. Sure, self-control does not come with the convenience that credit cards offer, but it can give them the opportunity to track their current financial standing and plan a way to move forward towards more money from there.
Knowing how personal wealth works is the first step in understanding the system. Try teaching the young ones some basic money terminology such as assets, liabilities, and net worth. For some, it might be pretty embarrassing at first to discuss this with teens when their net worth is negligible, but consider it a good primer for them on how to not end up broke later in life.
The sooner they learn that ‘assets’ are things they own, ‘liabilities’ are things they owe, and the difference between the two is called ‘net worth’, the easier it will be for you to create a formula that will help them understand how things work. Once they understand the terms' concept, open their world to how they can create wealth through various assets that have commercial or exchange value. Explain how investments work in such sectors as real estate properties, bonds, or even a simple savings account.
Of course, you'd also have to explain that not everything they own can be considered a ‘wealth-creating asset’, including cars, furniture, personal items, or others that only depreciate through time or do not increase in value. The common problem among young individuals who suddenly stumble upon wads of cash is that they are quick to invest in luxurious items that depreciate through time. Once your teen knows which assets can create wealth and how they can lower their liabilities, the greater their net worth can potentially be as they grow up.
Regardless of how financially literate your kid can grow up to be, unexpected things can happen as they build their personal wealth. And that's just how life works – cars break down, clothes are outgrown, and all kinds of doo doo happen in between.
Learning the art of cutting losses entails good foresight on things that will inevitably come. This principle applies to a range of aspects that may include inflation, wear and tear of your equipment, obsolescence of your business tools, erratic stock prices, or even simple everyday mistakes.
Help them determine which future losses to consider and how they can mitigate the effects on their investments or business. Some of the things they can opt for are insurance, warranties, or opening up an extra savings account as a contingency. Teaching them how to prepare for a force majeure will ensure that they will always be financially stable, both in business and real life.