Why Families Must Focus on Financial Literacy Now More Than Ever

A financially illiterate ‘big earner’ has less to offer

Fewer people talk about financial literacy for families. But it is one of the most important subjects that can be discussed in any home. Children must understand that a big salary does not create wealth on its own. But financial literacy does. That way, they grow up not only aspiring to be an employee who drives a nice car. Instead, they want something beyond employment – they would desire to create their own income using whatever tools at their disposal.

There is a general misconception that once one secures a highly paying job, they are already rich. But wealth is built over time. It is not a one-time event. Wealth building is a deliberate lifestyle that one chooses and practices for many years.

To build wealth, you need a combination of money and other tools that help rightly channel whatever money you have. In the end, it is not a game of the numbers where salaries are concerned – but the numbers where how decisions you make add or subtract from the money you already have.

If you can earn a good salary, go for it, but don’t stop learning about financial literacy

A good salary indeed places you ahead of the pack. It gives you one more helpful tool (money) to start building wealth. With a good salary, you can build wealth faster than an average person – but that all depends on whether you understand what you should do with your money. Remember, building anything is a process. If you do not understand the tools needed to complete the process, you might as well prepare to fail.

A financially literate individual who earns half the salary of a financially illiterate big earner will eventually become wealthier than the latter. That’s how critical financial literacy is.

If you are thinking, “why worry about building wealth when I have a high-paying job?” You must pay attention to this. A salary provides for you when you are employed. But beyond that, something else must fund your lifestyle. Therefore, financial literacy helps you set up systems that support your lifestyle after retirement or when you are no longer employed due to other reasons such as accidents and illness.

As such, financial literacy for families must be taken seriously. It gives children a dynamic mindset that knows how to use a combination of tools to survive through different economic environments and financial situations.

As we get more into this subject, you should understand that financial literacy has nothing to do with one’s education. Likewise, it has nothing to do with your job title. This is an entirely different skill that deals with how you understand budgeting, investing, saving, and other personal finance matters.

Therefore, besides sending children to school, parents must focus more on teaching them about financial literacy. The early you catch them, the more they become better managers of their finances.  

What is financial literacy

Financial literacy is the ability to understand financial components and skills such as budgeting, saving, investing, and personal finance management. People who learn these skills since young have a better chance of growing their net worth than people who start learning about it later. Therefore, financial literacy is a fundamental skill that requires more discipline – the kind that one learns over years of practice.

As such, to instill this effectively among our people, we are better off catching them young.

Why is financial literacy for families necessary?

Your children are growing. Soon, they will choose between spending all their money, saving, investing, or giving it away to charity. The choice they make goes a long way. It shapes their future. It determines whether they will remain a pain in your life and that of their children, or they will have more to give. So, they need to hear this.

What vs. When

Financial literacy is about knowing what to do with your money and when it will be right to do so. This begins at the basic level in any home. Financial literacy for families provides this knowledge.

I remember when growing up, I would see some guys earn money after running errands for an older person. When they do so, some of them would buy sweets right away. They would enjoy the taste of sugar while waiting for the next errand to come by. But others would take that money back home and carefully place it in a piggy bank. They would wait for another errand and do the same with their next earnings.

Those who bought sweets would forget about what they earned back then, just a few months down the line. But for the guys who trusted the piggy bank, their money would have multiplied. Once the money reached a certain figure, they would approach their parents and ask to buy a certain shoe, toy, or anything they had been longing for.

Here, you see two different sets of children. Some have a terrible habit with money. Some save and know when to use it, and on what (lasting things of value).

The above example is just at a basic level. But it shows the importance of financial literacy in our children. While here, it would help to know that some children naturally learn to do this independently. On the other hand, others need the input/push of their parents. Whatever the case, children are better off knowing about managing their finances at the very basic level.

Now, as they grow up, they start to graduate from either wasting money on sweets or saving money to buy clothes and toys. It becomes deeper.

Can you imagine a wasteful child when they grow up and start accessing luxurious items that cost more? They would waste their first salary on unnecessary things and have nothing left for transport the entire month. Yet the little extra savings that people spare from their paychecks are what they use to start investing.

I am sure you may have lived among people who spend their entire salary overnight. They would borrow transport money on the third day of the month, and you would wonder what happened to their money. This is a bad habit that would have started long back when they were young. Such practices grow because no one tries to catch them young. But where there is financial literacy for families, this can be avoided.

But as for those that enjoyed saving when they were young. They take this up with them. As soon as they start working, they develop plans that span for years. Within those years, they would have targets they know can achieve using various tools. Where they lack knowledge, they are quick to ask or will hire an accountant or consult a financial planner. You find that people like that do not need much of a salary to gather wealth. If they live in a financially inclusive economy, they can do much more within 20 years.

Ultimately, your financial knowledge must lead to a great life after retirement. You would still want to go on vacation and visit other countries using your own money. You would also like to have enough money to take your grandchildren to school, even if they are not yet born. This is how wealthy people measure themselves. And it all begins with small, useful habits we can teach our children when they are still very young.  

How can children learn financial literacy?

I am a firm believer in learning through participation. For children to better understand the advantages of making sound financial decisions, they must be given a chance to participate in things such as savings competition at home.

For example, you can give them pocket money every week and then let them know that they must not use all of it. Whoever has more saved after a set period wins a reward. After the competition, take all of them and start showing them the advantages of keeping their money so that it buys something bigger rather than sweets. Help them buy their own bicycle, for example, or pet, using their money. This way, they learn the value of money in a good way.

Finally, do not go too hard on them. This is something that they must learn naturally. What you want is for them to decide between wrong and right each time they have money in their hands. The process must be fun and uniting.