According to OECD, financial literacy is a combination of financial awareness, skills, attitudes and behaviors necessary to make sound financial decisions and ultimately achieve financial wellbeing. The joy of a parent is being able to provide for the needs of their children. The cost of raising children is at an all-time high and this largely contributes to the frugality of parents. Parents appreciate the compounding effect of thrifting and saving small amounts of money. Spending patterns drop when it comes to parents’ wants and desires and these financial resources are re-directed to child-care, savings and investments. But what happens when you find yourself always buying gadgets, toys and clothes for your children? Financial illiteracy in children has a negative impact on parent’s finances due to the emotional ties involved.
The home-storage and organization industry is raking in millions while helping us optimize spaces in our homes such as wardrobes and kitchen cabinets for stuff we have purchased. Decluttering and tidying up is a buzz word which rings true in most of our homes. How many toys, shoes and clothes does your child have? Some they have outgrown but look brand-new. Could you be raising a collector who could easily slip into hoarding? Some of the items might be gifts, clothes that were on sale, others you bought to avoid a tantrum at the shopping mall and others because you were compensating for not spending enough time with your children. To the extent that some children expect their parents to bring them something every evening, expect various gifts on their birthdays, and to be bought something every time they go into a shopping mall. Empowering your child with financial literacy can curb such demands and financial leaks.
Educating and empowering a child on financial literacy can lead to better spending habits for you. We need to train children that purchases have a money equivalent and an opportunity cost that affects them. Let them choose amongst close wants so that they can prioritize. Parents should role-model healthy financial habits such as comparison shopping. Children need to understand the relationship between one’s personal choices and priorities; the money needs and consequences that go along with them. Parents also need to re-think consumerism, children are targets of various advertisements from toy industry, cereals and fashion amongst others. That’s why they will be enthusiastic about something at the mall and thirty minutes later they are bored with it! Satisfying their wants is only beneficial to the retailers and manufacturers who have mastered the child’s consumer behavior.
Its critical for parents to teach their children positive money mindset especially in this day of social media flashiness and comparison. According to Merill Lynch’s report – the financial journey of Modern parenting, 67% of the parents surveyed admitted to childcare costs being higher than they should be because parents feel pressured to give their children what their peers have. Being self-sacrificing to an ignorant child does not make the situation better. Financial literacy will empower your children to empathise with your financial situation and induct them into healthy financial habits such as saving, investing, minimalism, responsible use of credit and implications of bad credit score on their financial future.