Financial literacy is one of the most valuable skills a child can develop, yet it is often overlooked in traditional education systems. Financial literacy refers to the ability to make informed and responsible decisions about money, from spending and saving to investing, borrowing, and earning. It encompasses understanding core financial concepts like interest, inflation, and risk, as well as mastering the use of financial tools such as bank accounts, credit cards, and loans. By equipping children with a solid foundation in financial literacy, parents can empower them to make wise financial choices throughout their lives.

The importance of financial literacy cannot be overstated. In a world that’s increasingly driven by economic decisions, from managing a household budget to understanding the complexities of the stock market, knowing how to handle money is essential. At an early age, kids can begin to form the habits and behaviors that will shape their financial futures. Programs like Flareschool are designed to support children in building this knowledge and developing key financial habits early on, ensuring they grow up with the skills needed to thrive in an unpredictable world.

The Importance of Financial Literacy

"Managing money effectively demands a sophisticated set of skills ranging from basic mathematical skills to budgeting, an understanding of how interest works, and emotional regulation to avoid splurging," says Louise Hill, Co-founder and CEO of GoHenry. Her statement underscores the breadth of knowledge required to navigate the financial landscape, and it highlights the necessity of financial education for children. CBI Economics, in partnership with GoHenry and Wilson Wright, points out that financial literacy can raise early-career earnings by up to 28%, and students with high financial literacy are more likely to start a business.

Additionally, studies have shown that financial habits form by the age of seven, with children developing the core behaviors that will influence their future financial decisions. A study conducted by Cambridge University indicates that financial habits are deeply embedded during childhood, which emphasizes the need for financial education at a young age.

Sam Sims, Chief Executive of National Numeracy, explains, "Feeling confident with numbers is a vital life skill, particularly when it comes to managing your money. We're faced with daily decisions about money every day at work and home, from paying household bills to comparing prices in a supermarket or saving for a holiday. If we don’t feel confident with numbers, it's harder to stay in control of our finances."

Despite the inclusion of financial literacy in the National Curriculum for secondary schools since 2014, there is still a significant gap in financial education. A study from the London Institute of Banking and Finance found that 82% of young people want to learn more about managing money, including topics such as mortgages, pensions, loans, and credit cards. Budgeting, debt management, and tax-related topics also rank highly in terms of interest.

Why Should Financial Literacy Be Taught in Schools?

As our world becomes increasingly complex financially, it’s critical to provide children with the education needed to navigate these complexities. Teaching financial literacy equips children with the skills they need to plan for the future, avoid debt, and remain financially stable. Stewart Perry, Director of the Centre for Financial Capability, stresses the importance of robust financial education to combat the national financial capability crisis. Providing young people with the right financial skills can help them navigate economic challenges in the future, making them more financially resilient.

However, only 4 in 10 children report having received financial education at school. While many schools would like to offer more in-depth financial lessons, challenges like a crowded curriculum and a lack of resources prevent them from doing so.

Talking to Your Kids About Financial Literacy

Talking about money doesn’t have to be complicated. The key is to make financial literacy a natural part of everyday conversations. Begin by explaining simple concepts, such as where money comes from, how to budget for groceries, and how to manage an ATM card. These real-life examples are perfect opportunities for your children to see financial literacy in action.

Louise Hill from GoHenry emphasizes the importance of introducing children to financial concepts as early as possible. She notes, "Research from the CFPB (Consumer Financial Protection Bureau) shows that kids start developing financial habits and values in early childhood. Providing children with an allowance gives them a chance to practice these critical skills, setting the stage for their adult financial capabilities."

As children grow older, it’s important to expand their understanding of financial topics. Teenagers should learn about borrowing, credit scores, loans, and the stock market. These topics can be linked to real-world events or what they are learning in school, making financial literacy not only informative but also relevant to their current and future lives.

What Are the Benefits of Being Financially Literate from a Young Age?

The long-term benefits of teaching financial literacy to children are profound. Research shows that kids who receive financial education from a young age are £70,000 wealthier by the time they retire. This statistic highlights the importance of instilling good financial habits early.

Financial literacy offers several key benefits:

• Financial Independence: Children who understand personal finance are better equipped to manage their money and become self-sufficient, reducing their reliance on others.
• Improved Decision-Making: A solid grasp of financial concepts helps children make informed choices about spending, saving, investing, and borrowing, leading to better financial outcomes.
• Debt Management: Kids who are financially literate understand how to avoid debt, the impact of interest rates, and how to manage credit responsibly.
• Building Wealth: Financially literate individuals are more likely to make wise investment choices, laying the foundation for wealth-building over time.
• Financial Security: Understanding how to manage unexpected financial challenges can provide a sense of security and peace of mind.
• Avoiding Pitfalls: Financially literate children are less likely to fall victim to financial scams, predatory lending, or other harmful financial practices.

What Are the Key Components of Financial Literacy?

At GoHenry, six core components of financial literacy are emphasized: earn, spend, save, invest, borrow, and protect.

1. Spend: Teaching children the difference between needs and wants is crucial. It helps them prioritize spending and avoid impulse purchases.
2. Save: Saving is essential for achieving both short-term goals (e.g., buying a toy) and long-term aspirations (e.g., going to college). Kids should be taught how to set saving goals and delay gratification.
3. Earn: Understanding how money is earned is fundamental. Earning money through chores or a small job helps kids understand its value.
4. Borrow: Kids must learn about borrowing money, interest, loans, and credit scores to prevent them from making mistakes as adults.
5. Invest: Teaching children about investing, including stocks, bonds, and retirement savings, is essential for building wealth.
6. Protect: Teaching kids about online scams, fraud, and digital security is necessary in today’s world, where most transactions are digital.

Activities to Help Children Build Financial Literacy

To reinforce financial lessons, practical activities are invaluable. The following activities can help children build strong financial habits:

• Give Them Pocket Money: Regular pocket money helps children learn how to budget, save, and spend wisely.
• Use Financial Education Apps: Apps like GoHenry’s Money Missions make learning about money fun and engaging for kids through videos, quizzes, and rewards.
• Set Savings Goals: Encourage kids to set goals and save for them. This will teach them the importance of planning and delayed gratification.
• Get a Summer Job: Older children can benefit from earning money through part-time jobs, teaching them the value of hard work and financial independence.

Show Them Common Financial Mistakes

It’s important to teach kids about common financial mistakes so they can avoid them as adults:

• Spending More Than You Earn: Help kids understand the importance of living within their means.
• Not Saving for the Future: Teach the value of setting aside money for emergencies and long-term goals.
• Ignoring Debt: Explain the consequences of borrowing irresponsibly.
• Ignoring Financial Planning: Help kids understand the importance of setting financial goals and creating a plan to achieve them.

Financial Literacy Resources

There are numerous resources available to help teach kids about money. From age-appropriate videos to interactive apps, these tools can make financial education fun and engaging for kids of all ages.

How GoHenry Can Help

GoHenry provides tools to teach children about financial literacy through its prepaid debit cards, which help kids manage their money, set goals, and learn the value of spending, saving, and budgeting. GoHenry's platform is an excellent way to introduce children to practical financial lessons that will serve them throughout their lives.

In conclusion, financial literacy is a crucial skill that can empower children to manage their finances effectively, avoid common financial pitfalls, and build a prosperous future. By starting financial education early, using resources like GoHenry and Flareschool, and engaging in real-world learning experiences, parents can equip their children with the tools they need to succeed financially.