Financial Literacy and The Next Generation
Nobody is born with financial knowledge. For most of us, our financial literacy and capabilities develop over time, with many of us making mistakes along the way. Financial literacy is important at every age. The earlier we can teach our children, the more likely they will be to make wise financial decisions throughout their lives.
We can help our children avoid the financial mistakes we may have made and achieve successes of their own – they can learn from our experience. Financial literacy is key to helping the next generation manage their money effectively so that they can become financially stable, build assets, and achieve personal goals.
Basics of Financial Literacy
Establish a Budget
Having a budget and sticking to it is the foundation of financial health at any age. Budgeting can be taught from the day our children receive their first allowance and carried through to their first part-time job and onwards.
Understand the Difference Between Wants and Needs
Needs are the things we require to sustain day-to-day life, such as food and shelter. As children grow older, basic needs will come to include fixed expenses such as education, mortgage/rent, car/transportation, etc. Wants are things that we desire but are not necessary for day-to-day living. We can help our children learn the difference between needs and wants.
Open Bank Accounts
Each child, at an appropriate age, shouldhave a chequing account for daily transactions and for the use of a bank card. They should also have a savings account for emergencies and long-term savings. Bank accounts will teach minimum balance requirements, service fees, overdraft protection, interest, etc.
Understand and Establish an Emergency Fund
Even at a young age, it is important to understand the purpose of an emergency fund (typically three months of monthly expenses). The fund size and importance will necessarily increase with age.
Develop a Credit History
Having a credit card in their name can help young adults build a positive credit history. Learning to pay credit card bills on time, every time will contribute to a higher credit rating.
Filing a Tax Return
Learning to file a tax return after their first year of employment will teach young adults the basics of income tax. Professional tax help should be acquired as income increases and to take advantage of any income tax savings strategies.
Know When to Ask for Help
Young people should be assured that professional financial help is readily available and that they should not be hesitant to ask for help. Rather than make an uninformed financial decision, it is always best that they ask for advice – before doing something that could negatively affect their finances or credit rating for many years.
Begin Financial Literacy at a Young Age
Enabling the next generation to develop financial literacy and start making knowledgeable financial decisions at a young age can circumvent years of costly mistakes due to overspending, paying excess interest, or paying more taxes than necessary. Good financial practices will carry on and financial literacy will build throughout their lifetime leading to positive asset accumulation and successful retirement planning.
This content is provided for general informational purposes only and does not constitute financial, investment, tax, legal or accounting advice nor does it constitute an offer or solicitation to buy or sell any securities referred to. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this content should consult with his or her financial partner or advisor.