The Importance of Financial Literacy for Children, Adults, Couples, and the Elderly

Overview: Learn the benefits of being financially literate even if you’re not in financing

We live in a society where financial conversations are often avoided simply because many lack financial literacy and don’t feel equipped – or relevant enough – to participate in these discussions. This could also be a likely result of the age-old belief that talking about one’s money, at least in America, is indirectly highlighting one’s personal worth (or lack thereof). However, this type of information is becoming more important as the U.S. economy continues to experience fluctuation; people are looking for ways to make the most of their financial resources, and are turning to the experts on the internet for trusted insight.

So what exactly is financial literacy? This type of knowledge allows a person to understand and effectively utilize various financial skills, including personal financial management, budgeting, and investing. In short: Financial literacy is the foundation of your relationship with money, and it is a lifelong journey of learning.

While some would rather avoid “money talk” at all costs, our professional word of advice is to start early. Because the earlier you start, the better off you’ll be (since education is the key to success when it comes to money). So let’s consider four areas where financial literacy is a critical conversation to have, and why:

Financial literacy for children
Financial literacy for beginners/adults
Financial literacy for couples
Financial literacy for the elderly

Not only will we address the importance of financial literacy within these various groups, but we’ll also provide guidance on how to establish these conversations in a not-so-financial-savvy environment. Get your bank accounts, wallets, and piggy banks prepped – we’re diving into the funds.

Financial Literacy for Children

We love children because of their keen desire to learn. But do financial conversations belong in a child’s learning space? Some would say this type of conversation should be reserved for adults. On the other hand, others would say children should learn about finances early on. Our position in favor of teaching children about finances should come as no surprise, especially since we’ve seen the harsh consequences that many adults experience from poor money management skills (we address this a bit in our article on tackling debt, linked below).

Just how do you teach children financial literacy if you barely understand it as an adult? Don’t worry, we’ve got you covered. The tips below will help you instill good money habits with your little ones without overwhelming them or yourself.

How to Instill Financial Literary in Your Kids

1. Give your kid an allowance. Regardless of their age, one of the most important lessons you can instill in kids is that money is a finite resource. “When they have to work for their money—as you likely do—they’ll learn to use it more carefully,” says Investopedia. Many parents are in the habit of supplying their kids with a weekly allowance, which can already help teach budgeting skills. Another technique is for them to earn money through chores so they can draw the mental connection between income and personal effort.

2. Let your children contribute to purchases, especially those nonessential items they tend to make requests for in the store (toys, video games, ice cream). Younger kids in particular don’t understand that there’s only so much money you have each month to spend. However, one way to get the point across is to make them contribute toward these nonessential items. The results will be that your children will get a better sense of what things cost, and will also learn how to save up and prioritize what to purchase.

3. Make finances fun with money-friendly board games that are specifically designed to help kids learn the importance of thriftiness. Payday is among the best for teaching kids valuable money management skills. With the next paycheck a month away, players have to make their money last. They can purchase items they think will make them a profit and even take out loans, but getting in over one’s head can create problems, especially when there are other bills to pay.

Financial Literacy for Beginners (Early Adults Included)

Most people begin building financial literacy skills in their early adulthood. It’s important for a person to learn good financial habits when they’re starting out so they can continue to carry those habits with them as they get older. The days of writing checks and balancing checkbooks on paper are all but gone, but our online reality makes it pretty straightforward to maintain good financial habits.

How to Establish Good Financial Habits in Early Adulthood

1. Create and stick to a budget. When you get your first “real,” steady job, it can be exhilarating to watch your regular paychecks come in. It can be tempting to think of much of your newfound income as “disposable income,” and to spend it on snacks, entertainment, and similar indulgences that are not strictly necessary for your life. To ensure you don’t run out of money buying fun stuff, create a budget to prioritize the essentials: rent, groceries, utilities, car payments, student loans, and so on. When payday rolls around, make sure you cover these crucial expenses first.

2. Keep an eye on your bank accounts. With direct deposit, automatic bill pay, and other modern conveniences, it’s easy to take a “set it and forget it” approach to your bank accounts. But don’t just assume everything’s going according to plan! You should take a look at your account activity on a regular basis to be sure there are no transactions you weren’t aware of, and that your balance is what you expected it to be.

3. Take advantage of your bank’s app and online features. On a similar note: Today’s financial institutions generally have comprehensive, easy-to-use websites and apps that you can use for all kinds of things beyond just checking your balance. You can make transfers, send money to friends and family, open new accounts — you can even deposit checks using some banks’ smartphone apps! There are so many services your bank will provide without you ever having to leave your couch. Just choose a really secure password for your bank account and your phone itself!

>> Related Reading: How financial literacy for young adults has evolved

Financial Literacy for Couples

Sharing your life with another person is a big step, and it comes with a lot of significant adjustments. After years of being responsible only for your own finances, it can be tricky to navigate a new life where your financial decisions affect another person. There are a number of steps you can take to keep your new situation running smoothly.

How to Maintain Healthy Financial Habits for Couples

1. Be open and honest about your own personal financial literacy, situation, and expectations. Entering into a committed relationship with a significant other or spouse is best when it comes with no unpleasant surprises. If you have a lot of debt, or if you feel ignorant when it comes to savings or investments, you might find it awkward to bring these things up with your partner. But it’s better to get everything out in the open early: You can work together to come up with a plan to reduce your debt, or your partner can help answer your questions. You’ll feel better being upfront than you would holding it all in.

2. Open a shared account for household necessities. Each half of a couple will have their own personal expenses, but sharing a life means a lot of monthly expenses that are essential to both people. Consider opening a joint checking account that you both have access to. You can both deposit a designated percentage of your income into it, and you can use it to pay for things that you both benefit from — rent/mortgage, food, gasoline, home internet service, etc. It might also help to create a budget spreadsheet you both have access to, so you can both keep track of what should be going in and coming out, and keep yourselves accountable.

3. Plan regular discussions on the state of the household finances. According to the Journal of Accountancy, 73% of American adults have experienced tension in their relationship caused by financial issues. Once you’ve started the conversation about finances and joined your accounts together, don’t stop there. Check in regularly with your partner to confirm that you’re both on the same page. Go over your budget together so you can agree that it’s realistic and up to date. Financial literacy is an ongoing process.

Speaking of which…

Financial Literacy For the Elderly

The golden years of life often bring retirement and other significant changes. Elderly people may find that some of their expenses increase even as their regular income decreases. It’s important to continue managing money wisely in these years. Here are some ideas to keep in mind.

How to Maintain Financial Literacy for the Elderly

1. Work with a trusted financial advisor. If you’ve already established a relationship with a financial advisor by the time you make it to your retirement years, that’s great! Otherwise, it’s a good idea to think about looking for someone to work with who can help you devise the best possible plan for managing your funds and investments to keep your money situation stable after retirement. If you feel overwhelmed by the challenge of choosing the right person or organization, ask friends and family for a recommendation.

2. Beware of scams. It’s an unfortunate fact of life: As long as there has been money, there have been unscrupulous individuals trying to cheat people out of their money. One of the hazards of today’s largely digital world of financial transactions is that it’s opened up a new realm of methods and technology for scammers, and elderly people are among their favorite targets. Be wary of any phone call, email, or online alert that purports to be from your bank, the IRS, or any entity claiming that you owe them money — or they owe you money. Most importantly, do not give out sensitive account information to anyone who contacts you. If you’re unsure whether a communication you’ve received is legitimate, be on the safe side and get out of it as soon as possible.

>> Related reading: Avoiding Scams and Fraud for Older Adults

3. Take adult education classes. Your journey of financial literacy need not end when you retire. It’s never too late to stop learning, and that includes learning about finances. Look into adult education classes in your area – you may find some helpful classes on investing, new money management technologies, and more.

IN CONCLUSION:

If you’re not a natural-born financial whiz (and let’s face it — how many of us are?), accumulating financial literacy skills can seem like a daunting task. But if you take it one step at a time and keep yourself open to learning new things, you can improve your financial literacy throughout your life, from childhood to early adulthood to your senior phase.

If you need any assistance with taxes, bookkeeping, or other financial concerns, feel free to contact us at Prospect Financial Solutions! We’re ready to help!