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Importance of financial literacy for kids

What is financial literacy?

In simple terms, financial literacy refers to the knowledge of handling money. This includes understanding lending, borrowing, saving, investing, and the skills required to plan your monthly finances as well as the long-term ones. Even if we choose not to study investments or savings, we cannot ignore that, earning and spending plays a huge role in our daily lives. Right from monthly budgeting, day-to-day purchases, and paying taxes, financial activities are an important life skill and one that everyone needs to possess.

Is everyone not financially literate?

Unfortunately, not everybody is able to manage their money very well. This may lead to financial losses, difficulty in making ends meet, or even getting scammed.

In almost every society, children or young adults are expected to know how to save and invest as soon as they begin earning. What we fail to notice is that most academic institutions do not teach financial literacy as a part of their curriculum. Parents may not impart this knowledge to their children either because they feel that children aren’t old enough to understand, or perhaps parents lack the same knowledge themselves.

This, in turn, leads to children that grow up knowing the academic disciplines such as mathematics, history, geography, or even economics and statistics well. Still, they are clueless when it comes to knowing where they must put their money, how they can multiply it, or what can be done to ensure a financially secure future.

The best way to help children fill this lacuna is to empower them with financial education when they are young. According to a 2015 study by the American Financial Industry Regulatory Authority (FINRA), teaching financial skills to kids before they enter the workforce is crucial to helping them grow into adults who can achieve financial security and success1.

Why should one begin at an early age?

Money is a sensitive topic in every society. And in the majority of countries, parents never consider their children old enough to discuss money matters with them. Children are often kept away from critical financial discussions and decisions at home. It is difficult, then, for such untrained minds to quickly grasp the concepts of earning, saving, and investment when they begin to earn or when they wish to make grand purchases like automobiles, properties or shares, on their own.

What are the consequences of not understanding finances?

As an adult, many may feel hesitant to ask for help or involve their parents in personal money matters. When it comes to finances, one wrong decision can have a significant impact on your life. Apart from the physical loss of resources, financial crises leave people with deteriorating mental and emotional health. Numerous studies show that financial problems resulting from mismanagement of funds adversely affect mental health and are the major cause of anxiety, depression, insomnia, alcohol and drug abuse, or even suicide.

What is the right age to start talking about money with your children?

A Cambridge University Research study on Habit-Forming revealed that children as young as seven years old understand basic mathematics concepts2. There is evidence showing that children can very well understand abstract concepts if taught with tangible examples. Cognition and receptivity to new ideas is high amongst children. Besides, financially illiterate adults are a danger to themselves and others. Hence, it is neither advisable nor fair to keep children away from the study of finances.

The three Ss of money for kids- Spend, Save, Share

Kids are curious and have keen sight. By the age of 6, they understand that exchange of money is required for purchasing and selling things. Between ages 8 to 10, they try to gain a deeper understanding of money. Children learn by imitating their parents. If kids are exposed to simple financial transactions at this age, they will find it easier to comprehend more complex economic concepts once they reach high school or college.

As parents, we want our children not just to earn well but also learn where to spend and save and how to share. These are ideas we teach them as soon as they begin playing with toys and with other kids. The same can be applied to money.

How to introduce financial concepts to children?

Children will learn anything if it is taught in an interesting way. Getting creative is key. There are many age-appropriate activities that help kids understand effort and reward. Piggy banks are a great tool for children to collect money and then learn how to use the sum for different purposes.

Talk about the difference between ‘Wants’ and ‘Needs’, keep a diary to track spending, let children earn their own pocket money by doing chores around the house, or take kids with you for grocery shopping. All this will help them understand the value of goods and services. Don’t shower them with gifts for special occasions. Let them make a list and then choose what they want the most. In this way, kids will learn about budgets and that they cannot have it all. Help them make their own purchases from the money in their piggy bank or from their pocket money. Teach them that if they put off buying something for one month, they may be able to buy something worth more in the next month or use that amount for an emergency. This can teach them the concept of saving for the future.

Formal education

While there are many tips and tricks that parents can try with their kids, knowing what works for which age group can be a little tricky. Financial experts and educators are best equipped to deal with this. Seeking guidance from an expert will ensure that your children have their basic concepts clear. Plus, when someone apart from the parents talks about money matters, children will take them more seriously.

Classvio offers a carefully designed financial literacy course that is aimed at developing financial literacy in school students and teens. You can signup here to attend a trial class.


  1. American Financial Industry Regulatory Authority Study
  2. Cambridge University Research study on Habit-Forming