Financial literacy statistics over the past couple of years have been fluctuating and always has been unstable because of a number of factors: labor incomes, inflation, compound interests, and many others. In 2017, emerging economies like China, Singapore, and Denmark have all ranked above the United States in terms of financial literacy.
As the world becomes more and more complex, the term financial literacy becomes increasingly difficult – a majority of individuals do not plan for retirement or even for their children’s education. They rarely prepare for unexpected situations and have poor knowledge on managing their money, but why is this the case? Simple. Because they weren’t educated that way.
In today’s world, the education system needs to put more emphasis on teaching financial literacy in schools as early as possible. For instance, certain Singapore international schools teach about basic money management even during primary school. Here are reasons why other educational institutions should go take the exact, same direction.
Kids will learn the basic correlation between earning, spending, and saving.
Kids who are taught about financial literacy at an early stage in their lives will get a good grip of the correlation between three major money management factors: earning, spending, and saving money. They will understand the idea that money is a finite resource, and that it has a corresponding value for every other resource available. Why do I need to save? What is the importance of earning money in the first place? These are just some of the questions that pop in a kid’s brain when they first encounter money management lessons, and they will need answers from the grown-ups as early as possible.
Subsequently, kids who are aware of this correlation are likely to become financially literate when they grow older, since they fully realize the value of money and the cohesive balance between earning, spending, and saving. They probably have their own money logbooks and are not financially dependent to their parents at an early stage in their lives.
Kids will learn about the concept of taxes, and why they are necessary.
Being financially literate later on in life means understanding the necessity and importance of taxes, and this concept definitely should be introduced to children early.
While it is true that tax systems are very difficult to comprehend, the basic definition of taxes should still be taught. At first, it can be as simple as “money paid to the government to help the country with its everyday needs”, until the children get to a point where they need to learn how to pay taxes themselves.
Failure to teach the concept of taxes in school early usually results in major tax problems for children when they become career professionals, since they were not exposed to the relevance of this concept at an early stage in their lives.
Kids will learn about the importance of bank accounts.
Defining basic money management tricks should always be the first task for educational institutions, but kids who are aware of the importance of bank accounts takes financial literacy to a whole different level.
Kids will need a lot of guidance from parents and teachers on how to save a little money in the bank, but introducing the basic idea bank accounts to children will reinforce good saving habits. Educators should emphasize that no matter how small an amount, keeping extra savings in the bank is good in the long run.