5 top financial literacy lessons children should learn to become responsible about money.
Famous Nobel laureates such as Dr. Amartya Sen and Abhijit Banerjee who have won global recognition due to their contributions to finance and economics hail from India. Did the Indian Education System teach them finance lessons during childhood?
This country is also one of the fastest developing countries in terms of revenue, finance, economy, and income. It even reached its financial and economic zenith during the Gupta Empire.
So, when we have so many examples of milestones India has achieved in finance, have you stopped to wonder why there is still a gap between theoretical learnings and practical implementations?
Students are taught various theories on finance and other related fields. The books that are taught in educational institutions are of the highest quality.
Many schools and colleges also organise lectures from industry experts to impart hands-on, real-world knowledge about finance. Yet when it comes to implementing that knowledge in real-life later in life, they struggle to manage their money when they start earning.
As a result, it becomes imperative for students to learn personal finance and start practising those learnings from a very young age. This article will teach the five most crucial finance lessons the Indian education system must instil in children.
1. Value of Money
One of the most important aspects that most Indian children aren't aware of is the importance of money. For instance, if your teenager has access to an abundance of money, they will buy new clothes, games, electronics and whatever their heart desires. You may think they are spoiled. But that's not true.
It is mainly due to the lack of knowledge about the value. Just like we need oxygen, food, and water to survive, we also need money to lead our life.
Educating kids about how to spend money can help a child understand the difference between spending responsibility and splurging unnecessarily from an early stage of life.
2. Investing in different assets
The second important lesson that kids should learn from an early age is the importance of investing and the art of saving. Going by the textbooks, we can define investment as generating a profit by buying or purchasing something in exchange for an existing asset.
This 'something' is worth a huge sum and is always considered an asset. In earlier days, people invested money in banks and properties, etc. However, seeing the current market situation, these assets may not yield sky-high returns.
Kids should learn about modern-day investment avenues to generate maximum profit. For example, starting a simple investment journey on the Jar app, investing money in mutual funds or through SIP are some of the best things people can invest further without hassle.
Apart from this, it's equally important for schools to also teach them about the associated risks and strategies of investing.
3. Right spending habits
Another vital learning that kids and students should get concerning financial skills is the right way to spend your earnings. There should be a balance between a person's monthly payments and total expenses.
To master this art, schools should inculcate practical activities with students that can help them divide their monthly expenses into two parts:
- Essential expenses:
Regardless of your earnings, you must pay off the direct expenses to lead a comfortable life. You must bear these essential expenses like utility bills, gas bills, mortgages, loan repayments, etc. These could be school fees, tuition charges, and transportation costs for students.
- Secondary expenses:
Secondary expenses are for your wants. For example, the money kids spend on buying a better smartphone or new stationery before an academic year or buying food from the canteen every Friday.
Kids today must be able to differentiate essential expenses from secondary expenses. By understanding this basic definition, they can learn crucial budgeting skills.
4. Cycle of appreciation and depreciation
Money follows a continuous cycle of appreciation and depreciation. So, one of the significant financial lessons that need to be taught to kids is how money can grow one moment, and the next, its value might suffer from a sharp decline.
Without understanding how the cycle goes on, investment and expense management will be much more complicated than expected. Let's take an example of a house and a car.
After three years, the market value of a house will be more than what the person had to pay at the time of purchase. This is known as appreciation because the asset's value has increased by a certain percentage.
Similarly, if we consider the car, its value will go down after three years, due to depreciation. So, to master the art of investing, you need to increase your investment in instruments whose value has grown.
5. Bill payments and debts
The last lesson about finances that kids need to know is the impact bill payments and debts can have on earnings and financial status. No matter how hard your financial situation is, it's important that you manage to pay your bills on time.
Any overdue will not only levy higher interest but also lower the credit value. As a result, it will become more difficult to be eligible for loans and credits.
Similarly, someone with multiple debts in their name should know how to prioritise the bill payment. It is one of the most important skills children should learn from a young age. Paying bills on time and every time is one of the better financial habits everyone should master.
Financial learning in the classroom can help kids learn the importance of financial planning from a young age. Imparting the basics on how to perceive personal finances in kids can result in positive financial behaviour from the start.
Building these habits in your kids from a young age will see them becoming adults who are less likely to face financial crises in future, and are efficient in sorting out their finances from the get go.