Financial literacy is the ability to understand how money works. Sure, we all learned the basics at an early age: How to earn money, save money, and pay our bills on time. But financial literacy goes beyond that. It’s having a set of skills that can help us make better choices with our money.
Why is Financial Literacy Important?
Financial literacy is the backbone of a healthy savings account. When you have a better understanding of money and your personal finances, you can make healthier decisions in your day-to-day life. Better decisions lead to bigger savings accounts and more financial stability.
Think of it this way…
We all have financial goals. Some might be bigger than others. Yours could be as small as making it to your next paycheck without going into overdraft. Or, maybe this is the year you finally start saving for retirement. No matter the goal, financial literacy can get you closer to achieving it. On the other hand, a lack of financial literacy will lead to poor decisions and move you further away from your goals.
How Do I Teach My Kids Financial Literacy?
Start early. Children as young as five can begin to grasp the concept of money. If you educate them about things like savings and earning money in basic terms, kids can begin to develop good habits early-on.
If you’re buying groceries with your kids, start by pointing out the differences in prices between brands. For example, if the kids want to buy soup, start by comparing the different types of soups and best prices. Frame the message in a light-hearted way and keep things simple.
Have your children set long-term goals for themselves early. It could be as simple as saving up for something further down the road, like their first car. Occasionally, have them weigh the pros-and-cons of postponing buying something today and putting that money aside for those future goals. This teaches them about opportunity costs – the things you sacrifice to save money – and is very important to learn at an early age. For example, if your kid loves to buy snacks at school, he or she may decide they would rather put that money aside for something they’ve been saving for, like a laptop or concert tickets.
When kids start getting a bit older and landing their first jobs, it’s important to sit down with them and discuss the importance of putting some of their earnings into a savings account. Teaching them how good it can feel to save money early-on can help nurture those habits into adulthood.
As your kids approach their early twenties, help them establish a healthy relationship with credit cards. Credit cards are a slippery slope, especially when you don’t fully understand how dangerous they can be. The allure of buying something now and paying for it later can be all too tempting for a young person.
Encourage your child to only use a credit card if they have the money to pay the balance in full each month. That way, they can begin to establish good credit early and not incur large sums of debt right off the hop.
How Do I Become Financially Literate?
The first step to becoming financially literate is establishing what you do know about money and recognizing the areas in which you can grow. You might have some bad habits when it comes to spending. Maybe you keep making the same mistakes without realizing it. The important thing to remember is that it’s never too late to learn.
There are dozens of online resources that can teach you about budgeting, saving, debt planning and understanding your financial responsibilities. We also offer regular content on our website that can help you develop the tools you need to make more informed decisions with your finances. In fact, the Government of Canada has a self-assessment tool on their website to help you gauge which modules will help you the most.
To do your own Financial Health Assessment, click here.
Cashco Financial wants to help you get the tools you need to make better decisions with your money. With over 63 branches located in Alberta, British Columbia, Alberta, Saskatchewan and Ontario and hundreds of financial advisors eager to sit down with you and go over your finances, we want to help Albertans grow financially independent and build towards a better tomorrow.
Read more about the importance of financial health, here.