My dad taught me not to define myself by how much I had, but by what I did with what I had. I learned early on not to let money be the sole determining factor for the decisions I made in life, but I also learned that, although money couldn’t buy happiness, it could provide peace of mind, freedom and flexibility. I am thankful for the values my father instilled in me about “true wealth,” but I am also grateful that he taught me about finances. My dad understood the importance of financial literacy and has left me a legacy that I am now passing on to my own three children.
Financial literacy is having the knowledge necessary to manage personal finances efficiently. Financially literate people know how to achieve long-term goals and make healthy financial decisions.
On the other hand, those who are not financially literate have difficulty applying financial decision-making skills to real-life situations. Not only do they tend to make unhealthy money decisions that create financial problems, they have trouble reaching financial milestones. In America today, financial illiteracy has become an epidemic. A study done by the Financial Industry Regulatory Authority Foundation estimated that nearly two-thirds of Americans can’t pass a basic financial literacy test. That’s a problem.
Whereas basic literacy is a priority for public educators, financial literacy is not.
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Educators and pundits are still debating the part public schools and universities should play in promoting financial literacy — and clearly, it should be more than it is. Parents, however, do not have to wait to begin fostering financial independence in their children at home.
Here are some things you can be doing right now to raise financially literate children.
1. Teach your children to work hard. Children need to understand the correlation between work and earnings from a young age. If your kids are actually doing the work they’re getting paid for, don’t be apprehensive about paying them to work. Rewards motivate children, and money is an attractive reward. Allowing them to take on chores that they can get paid for not only teaches them the value of hard work but helps them learn how to manage their money. If they don’t do their work, don’t pay them.
You can also cultivate their entrepreneurial spirit by encouraging them to offer babysitting, pet care and yard work or housecleaning services to friends, neighbors or relatives. Kids who work for pay can learn the cost in labor of an impulse buy without monumental consequences. They can also learn the satisfaction of working hard to build savings and achieve goals.
Children who understand the value of hard work learn to be responsible for what they produce.
2. Give your children vision. Financial planning is about defining your personal goals and creating a realistic plan to accomplish them. Discuss your family’s financial objectives with your children and let them see what you do to achieve them. Encourage them to explore their own ambitions and aspirations for the future and set personal financial goals.
Their plans and objectives can and probably will change, but learning to implement both long- and short-term goals allows them to taste success and enjoy the fruit of good planning.