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Financial literacy is the "process by which financial consumers/investors
Even though the definition above was only for consumers/investors, financial literacy is for everyone.
When it comes to money, here's an idea of what to teach your kids and when:
We don't talk about money!
Money is a taboo subject in conversation, and talking about money or your personal finances is often frowned upon.
But it's an important topic, and we need to talk about money, especially with our families.
Households have fixed monthly income and expenses, and knowing how much we have available is critical.
Explaining to your children that certain expenses are simply impossible will teach them financial skills they will use over the course of their lives.
Everything costs money, whether it’s living in an apartment/house; buying/using some form of transportation (bicycle, scooter, car); buying food, clothes or games; playing sports; going to the cinema; going on holiday, etc.
Some dreams can only come true if there’s enough money to pay for them.
Parents each work for a monthly salary, and together these salaries have to be able to cover the whole family’s expenses.
"When you get money, you put it in your piggy bank. If you want to buy a toy, you have to see how much you have in your piggy bank. If you have enough money to pay for it, you can buy it. If you don't, you have to save up for it."
A current account is a lot like that piggy bank – it's a place parents can keep their money. Their salaries go into their current account, and they pay for what they need from this account. Parents have a bank card they can use to take out or spend the money in their account.
"A bank uses money to earn money. It holds money for some people, and gives money to others (in the form of a loan), who pay interest (for repayment) and fees (for the bank's service)."
It may be a bit too complicated to explain to your children how loans, interest and similar financial tools work! Nevertheless, there are wonderful books for every age which can easily explain money and finance.
In Luxembourg, it’s customary to open a savings account when a child is born. As soon as the child is able to understand, you can explain to him how saving works. To illustrate building up reserves for the future, you can use examples like how squirrels build up reserves for the winter.
When a child receives money from grandparents, for example, explain the concept to him and help him decide between spending it on a purchase or depositing some or all of the money in a savings account.
The amount of pocket money you give to your child obviously depends on its age and your personal circumstances.
Pocket money is an excellent tool for teaching them how to manage their expenses. Let’s say child daughter gets EUR X of pocket money per week, depending on its age. If she has to use that money to pay for her favourite magazine, trips to the cinema, gifts for her friends, etc.,
She’ll learn to manage a given amount of money by herself.
In Greg McKeown's book, Effortless, he explains how he and his wife gave their children the chance to waste some of their money. It’s important to learn this when you're young and the stakes are still low.
The kids got three jars each – one for charity, one for savings and one for expenses. When they got their allowance, they were free to divide the money between the three jars. Their parents stayed neutral and didn't give them any advice.
The kids were free to make their own “financial” decisions – for better or for worse.
Their eight-year-old son spent EUR 40 on an electric car, but was disappointed in his purchase and regretted it immediately. He should have saved it for his real dream, which was bigger and more expensive – a new bicycle.
Later on, as a teenager, he had already learned how to save a large sum of money for a specific goal, a trip worth several thousand euros.
Learning from your mistakes when the stakes are still low can help you achieve specific goals in the future.
How can a pre-teen, teen or young adult save EUR 1.378 in a year?
Check out the 52-week savings challenge and make it an epic goal for the new year!
Get a nice piggy bank and save every week.
For week one, put in EUR 1. For week two, put in EUR 2, and keep going until week 52, when you’ll put in EUR 52.
EUR 1 + 2 + 3 + … + 51 + 52 equals EUR 1.378, a healthy sum for a young person to either put in a savings account, or to spend all or some of to make a dream come true.