Financial education and learning about money
Why financial education?
Financial education is about learning to manage our money in ways that are good for both ourselves and society. More and more attention is brought to financial education as a result of an increasingly complex financial environment where individuals need to make bigger and more complex financial decisions. Adding to that are the floods of reports pointing out that young people have alarmingly low levels of financial literacy (link to financial literacy).
Given that money habits, values and skills are formed at an early age, financial education for children is essential. If done right it can help you build a positive financial future. A lack thereof could lay the groundwork for financial struggles.
How to learn about money
Traditional education tend to be instruction based, like explaining concepts or pointing out favorable actions. Although such knowledge is important, there must be some immediate opportunity to enact and put it to use, orelse it may decay. Here’ is an example: Knowing what interest is does not necessarily equate with me picking the savings account that offers me the highest interest. It does not necessarily prevent me from signing up for an SMS loan, either.
This is where pocked money comes into the picture. Pocket money is the enabler for experiential learning. That is, making and reflecting on consequential decisions. When children have firsthand experiences with earning, saving and spending even saving small amounts of money, they begin to develop their sense of what is normal or appropriate in money management.
Parents play a great role in financial education, something that several studies have pointed out. They constantly model choices, values, and attitudes as they engage in day-to-day activities, like paying bills or grocery shopping. Children observe these actions and implicitly draw conclusions and internalize financial behaviors and norms – for example, always taking a shopping list to the grocery store. Parental involvement is absolutely key! In the previous PISA report (2016) one of the most important findings was that children; who regularly talks to their parents about money matters, know more about money than others do. The relationship between financial skills and traditional financial education in school seems to be much weaker (Link to netmayer et al).
In short; traditional instruction based education is great. But it has to be paired with real, meaningful experiences. And parents! This is what the Gimi app does.
What do you need to learn about personal finance
To start off, you should get a basic understanding of personal finances. Earning, saving and spending is the trinity of money management.
How to earn money
Learning to make money is not about learning to acquire the most funds. It’s about exploring what work works for you. The relationship between work and reward (both monetary and emotionally). A common way for children to learn to earning money is through doing chores in return for a monetary reward. Parents that want to up the game can teach their children negotiation skills by discussing the reward for such chores. Or entrepreneurship by encouraging children to suggest their own chores.
How to save money
Saving money is an important skill, that also affect our overall well being. Be it to having a sense of security (buffer) or being on track to meet a financial goal. Saving money however does not come natural to us. The baseline for our brains is impulse, favoring spending on small things that make us happy today over saving so that we can buy something we dream about tomorrow. But by practicing we can learn to resist the impulse. Saving part of the allowance towards something we dream about buying is great practice for children. It’s also a perfect opportunity to introduce interest and show that money can grow if you save them.
How to spend money
To lead a happy and healthy financial life we need to be able to cover our day-to-day finances and still have enough to make choices to enjoy life. Learning to spend money isn’t about not spending anything at all, it’s about budgeting them in around what’s important to us. We need to learn making trade-offs. Having a card is a great tool to learn. It makes it easier to keep track of how we spend our money, giving us the opportunity to reflect on our choices and learn from experience.