Finance Lifestyle

Why, what, and how to teach your kids about Financial Literacy

Today’s economic structure is way more convoluted when compared to earlier generations. Comprehensive financial literacy or at least the fundamentals of it is requisite for both adults and children to cope with the current economic trends.

The reality is that most of us would have experienced financial breakdowns or budget deficits resulting from poor decisions at some time or the other. But maybe if as a child we were acquainted with the proper financial knowledge we could have avoided such situations and been more careful when it came to earnings, spendings and even savings. Now as adults we learn from our experiences and try to right some of the wrongs in our decisions. But not all of them. So, what about our children? What if they repeat the same mistakes we did?

Myaccountingcourse describes Financial Literacy as “The education and understanding of knowing how money is made, spent, and saved, as well as the skills and ability to use financial resources to make decisions. These decisions include how to generate, invest, spend, and save money.”

If we take into consideration the current generation, global markets offer various financial services like credit cards, e-wallets, online banking, online purchases, buying assets, investing in shares, coupons, reward points, easy loans & mortgages, insurance, retirement plans, health insurance, the list is endless and its all available at a click of a button. When everything that we wish to have is right at our fingertips, we tend to purchase it without thinking about the real cost or the pros and cons of having it.

In fact, youth and even adults do not really have a command over effective management of at least half of those subjects. Most of society grows with only survival instincts in personal finances rather than mastering it. As a result, they end up with huge debts on their shoulders in the early days and carry it forward into their future.

According to themoneycharity, in the year 2017 alone, every day nearly 248 UK citizens either went bankrupt or were unable to clear off their debts, bringing it to an average of one person for every 6 minutes and 13 seconds. During the same year, net lending increased by nearly £156 million a day. Even the mortgage scenario was at the same level of disruption with 52 mortgage possession claims and 32 orders made every day, with 15 repossession of properties. By the end of March 2017, the outstanding consumer credit lending grew to £197.4 from £182.8 billion in March 2016. We see that irrespective of the information available on how to mitigate personal deficit, the debts are increasing day by day.


Lack of financial literacy is the main reason for such turmoil in the personal lives of people, which also bears a heft weight on the economy. It hits hard on every individual and the whole society, irrespective of some of the populace maintaining clean records. People must understand the necessity of financial literacy to overcome the economic slump.

As per OECD statistics, around 96% of teens in the UK are worried about money, while this may shock, it doesn’t get any better; 52% of the teens are already in debt by the time they turn 17. These numbers prove that unless we do something about it, the future is going to be nothing more than a financial dismay.

So, what can we as adults do?

Our generation is responsible for some of the greatest shifts in terms of making this world a better place with collective endeavours. We also have witnessed some of the worst economic impacts in history. So we must not stand down but fight back to correct it using financial literacy as a tool. The only way out is to teach the younger generation how to effectively manage themselves to have a bright future.

For those of us who have kids or younger siblings/cousins, we can start by nurturing them with various aspects of earning, spending and saving money. It is not an easy task to teach them about finance in a day or even in a month for that matter. It takes time, patience, and even adopting creative methods of teaching.

Some might feel or say that children will eventually learn about money as they grow old and that such education isn’t necessary. But know that money is a paramount part of life and the sooner they realise this, the better they become in handling it. So, if your kids know that you need to go to a store to buy something, know that they are ready to learn about the basics of money.  

A good economy not only depends on the financial institutes or businesses but also on the financial strength of every individual in society.  

Below are some topics that you may find helpful in teaching your kids about financial literacy:


Parents are super righteous in teaching their kids about manners, discipline, social responsibilities and safety measures to lead a healthy life. It makes them happy when others talk about their kid’s admirable qualities as a human being. However, some parents also sometimes wish their kids knew the value of money when asking for a new gaming console or a vacation to Disneyland.

In such cases, parents must make use of available opportunities to teach their kids about the value of money.

To being with, tell them how you make money. Explain to them what exactly you do and how that enables you to earn money. They might not get the complete picture, but at least they will understand that one has to work hard to make money. Make them grasp the fact that you have to earn money to eat food, have a shelter, and buy necessary things in life and it comes at a price.

The next time they ask you to take them on holiday or to buy an expensive item, tell them they have to earn it. Assign tasks like cleaning their rooms, gathering facts about the holiday place or their interest subjects for which they will be paid and can be used for the holiday or buy the items. You can also ask them to master some new skills to earn it.

With such tasks, your child will comprehend the fact that one (as they grow older) needs to work hard and have the skills to make money. Remember to always compliment the child’s work on a regular basis, this will boost their interest.


Saving and Spending

Most children do not think about the concept of saving and spending. They crave for instant gratification rather than a delayed one because they do not fathom the benefits of it. Using the budget as a tool is the best way to teach them this concept.

Budget is a simple statement which helps you keep a record of all your income and expense. It helps one to fight budget deficit by focusing on necessary expenditure and excluding the unnecessary. Having said that, some adults tend not to follow the budget plan because they don’t understand the true power of it.

Click here to read on how to create a simple budget tool.

Start having regular budget sessions (once or twice a month) and involve your kids in it. They might not understand all the details of the income and expenses, but at least it would be like an introductory session to them.

Make sure that they understand how much you make, spend, and save in a month. Whenever you give allowances to your kids help them in managing it. Create a simple budget form for your kids with income, daily expenditure, and savings.  

Write their allowances and any money they receive in the form of gifts as income. Help them in writing the money they want to spend on a daily basis and divide them into parts by taking into consideration their needs and wants. It could be like eating with friends, going to a mall or buying small things.

Ask them if they are looking forward to buying something specific, for example, a video game or new shoes. If the price exceeds their weekly/monthly allowance, help them cut down their daily spending and write it under the savings column. If they have more than one item in their wish list, help them create more savings and let them prioritise.

Tell them that they could use the savings to the items they wish to. Once they buy their first item with their savings, they will realise the true sense of delayed gratification and also understand the value of the product.

Allow them to make any changes in the budget plan (once or twice in a month) and reward them with some extra cash or gifts if they stick to the plan. Essentially have some kind of a rewards system.


After your kids have a basic understanding of the above subjects, you can start teaching them about borrowing money or using credit cards. Primarily because borrowing money or getting a credit card is very easy these days and it will become easier by the time they become adults and they might misuse it by taking it for granted. So it is important that kids understand the fundamentals of it.

Use the available situations to convey the working procedures for loans and credit cards. Tell that them that you can take loans to buy big things like cars or home, and return them in small amounts over a period of time; or use a credit card to buy some expensive items and pay it back in instalments. But that while repaying the money, you have to pay extra in the form of interest.

If you have a running mortgage or loan, you can take it as an example. Or whenever you are visiting a bank to apply for one, take your kids.

If you have a car or home loan, show them how much you have taken from the bank and the amount you are paying in return on a monthly basis. Ask them to calculate the total amount you are paying and difference it with the amount you borrowed. Tell them the extra amount you are paying is the interest which you pay in return for taking the loan.

Do the same with the credit card. If you have used a credit card for shopping or paying at restaurants, spread those bills and ask your kids to calculate it. Once done, show them your credit card bill amount. And say that the extra amount is the interest that you have to pay for using the credit card. It will give them a realization that if they use a credit card or a loan, they will have to pay more than the principal amount.  

If your kid is a teenager and asking you to buy something for them, tell them that you will buy it but will have to repay it from their allowance with small interest. Only do that when they ask for expensive items which they can’t buy from their allowance. Don’t be too hard, and play in accordance with the situation.

You should teach them about maintaining good credit scores, minimum balance in the account, paying bills on time and how keeping off the debt helps in acquiring good financial benefits.



Teaching kids about investment can be tricky and difficult. However, teenagers with a basic understanding of earnings, spendings, and savings are mature enough to learn about investments.

For example, you can buy two small potted plants, one which will flower and another that won’t flower. Brief them that you will be selling the flowers and making money from it and they can also be a part of this by investing some of their allowance amounts in that.

Make a sheet with the total amount that cost you to buy those plants. Divide the cost of the plants into parts and tell them how much percentage of the plant they own and how much they will be getting.

After the first plant blooms with flowers, sell them or just keep it to yourself and tell them that they’ve made so much. Later, divide the profits in respect to the amount they invested. For the second plant, make them aware that it did not make any flowers so the amount they invested in that particular plant will be a loss.

Make your kids discern the fact that savings are secure, while investments can be risky.

If your child is in their teens, then you can perhaps take them deeper in understanding the concepts of investments. If you have any stocks, take a weekly check and show them how the plunges in stocks and how your profits are a reflection of them.

Read Three factors to consider before making an investment

You can teach them with playing games like counting coins, classic monopoly, take them out when you go shopping, or even asking them to shop for groceries. When you go out shopping, give money to your kids when checking out at and explain to them the value and the need of buying the items.

If you still think that your kids don’t need financial literacy, think about the last time you took a wrong turn in regards to your personal finance. Didn’t you wish that you had a guiding hand which would have helped you deal with the situation? So by teaching your kids about financial literacy, you will help them avoid or at least minimise taking wrong decisions or overcome any financial breakdowns in their adulthood.

In this fast-paced world, even with the smallest of errors, people are left miles behind. And here we are living in a world surrounded by money, where everything we touch, eat, drive and live under have some form of monetary implication or the other. People must make conscientious decisions when it comes to money, thereby saving themselves and future generations from going into financial turmoil. So, it is important the young generations assimilate the ins and outs of finance and use it to make wise and rightful choices when it comes to money. 

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