- 10 Oct, 2024
- 0 Comments
- 2 Mins Read
What is financial literacy
Financial literacy is the possession of a set of skills and knowledge that allows an individual to make informed and effective decisions with their financial resources. This leads to an overall sense of well-being and self-trust. “A. Enabor 2023”.
From my definition above, I believe that all parents and guardians will want their little ones to achieve this feeling of wellbeing and self – trust, thus making financial literacy a non-negotiable, a life skill if you will.
Why is financial literacy important for children?
- To feel empowered as they tackle the world
- To possess the skills to make wise financial choices
- To create a financial legacy that stands the test of time
- To benefit from the biggest ‘free’ financial tool: compounding
Key Pillars of financial literacy
- Budgeting: You should have a written down budget and encourage your children to do the same or involve them in creating the family budget. You can do this weekly or monthly in line with your pay schedule. Normalising this demystifies the fear of budgeting and helps to make it second nature as they grow up. I recall creating our holiday budgets when I was younger. It was so much fun, gave me a sense of ownership. It also gave me something to look forward to when we got back – the budget reconciliation. More on that in my money journey article.
- Savings: A clearly defined plan to achieving your financial goals. Our savings tracker is a great way to involve the kids
- Investing: Investing is the long game wealth building tool. Remember that an investment is supposed to yield positive returns over its lifetime. Ensure that you choose the right investment for your goals and that you review them intermittently, and course correct when you need to. Choosing the right investment vehicle is as important as the investment itself. For investing in the money market, I recommend STOIC Money. I have taken their course, which I paid for and believe in their approach and ethos. If that changes, I must remember to update this post.
- Giving: Giving is an underrated, but important part of financial literacy. You heard the phrase “givers never lack”? Money is a tool, a tool to be used for good or bad. Giving within reason and budget helps us to maintain this balance.
What financial literacy is not
- Memorising Financial Terms: Financial literacy is not just knowing the definitions of words like “interest” or “inflation.” Financial literacy is about understanding how these concepts impact your everyday life and financial decisions and applying them appropriately.
- Being Rich – Financial literacy does not mean having a lot of money. It means knowing how to manage the money you do have, whether it is a little or a lot. In fact, if you cannot manage little, you probably will not properly manage a lot of money.
- A Guarantee for Success – Being financially literate empowers you to make informed choices, but it does not guarantee you will avoid financial difficulties. Other factors, such as job loss or unexpected expenses, may still impact your financial health, especially if you do not have a solid emergency fund.
- A Quick Fix – Learning about money isn’t something that happens overnight. Financial literacy is an ongoing process that requires time and practice to build strong habits.
Stay healthy and Wealthy
Written by: Anjie Enabor, FCCA
Reviewed by: WordsMaestro