Eleven-year-old Zayaan Arfaz learnt how to be careful with his money the hard way when his teacher signed his entire class up for the fun financial literacy website Squirrel. He was allocated 2,000 Squirrel dollars every week. Using that, he had to pay three bills- education, transportation and rent. From the remaining amount, he could choose to deposit in his savings and an emergency fund or spend on whatever he wanted. He earned points for every payment and purchase, but there was a limit of two daily transactions.

During the initial few months, he splurged on a mansion, a sports car and a host of collectibles. "I was spending $800 collectively on the mansion and sports car weekly," he said. "I had no savings or emergency funds and trailed behind on my class leaderboard."

The Grade 6 student soon realised that he had to change his ways. "I stopped buying collectibles and started paying off the debt," he said. "I could earn more points by transferring money to my savings and emergency accounts. So, every day I would transfer some money. I had also defaulted on some of my bills, again making me lose points. I made it a point to pay off the bills first. Now, I am very high up on the leaderboard. I think I could top my class if I am careful over the summer."

Squirrel is just one of the many platforms teachers and experts use to help children's financial literacy. With credit cards and loans becoming readily available and overspending becoming a real problem, experts are advocating teaching children how to deal with finances at an early age. Here is a look at how to go about this.

Why teach financial literacy?

Experts say financial literacy is a life skill that must be taught, especially to children. "Incorporating financial literacy education into your children's learning is a vital investment in their future," said Vijay Valecha, Chief Investment Officer, Century Financial. "Equipping them with the necessary skills to manage money wisely will set the stage for their financial success. Children who acquire financial literacy early on tend to make better financial choices as adults. They are less likely to fall into debt and more inclined to save for their future."

When to start financial literacy?

There is no definitive answer to this, as per Vijay Valecha. "Numerous experts concur that it is never too early to introduce children to the topic of money," he said. "Starting early in teaching kids about financial literacy yields numerous benefits. It is crucial to initiate these conversations early and consistently integrate them into your family's routine."

Meanwhile, financial expert Marilyn Pinto, Founder of KFI Global opined that between the age of 8 and 10 was a perfect time. "That is when they can relate it to real life and understand the different concepts of personal finance," she said. "Teenagers need to have this knowledge; it's something they shouldn't be leaving for college without."

Important factors to focus on

Financial literacy is more complex than giving children pocket money and expecting them to spend it sensibly. "Teaching youngsters to spend money, even if they do track their spending diligently, isn't financial literacy," said Marilyn Pinto. "Financial literacy is a lot more nuanced than that. It's building their mindset; it's discussing tough financial situations, it's helping them understand how money works and preparing them for making better life decisions, most of which are predicated on money."

 Here are her tips on how to build financial literacy:

  • Start early. It's easier to learn when young and ingrain good money behavior, which then becomes hardwired and second nature to the kids.
  • Financial literacy is relevant to all youngsters, regardless of gender or career choice.
  • Have regular conversations around money.
  • Beware of them getting financial advice from social media. Most of the 'influencers' aren't licensed to give financial advice, and there is usually a conflict of interest as they sell financial products either explicitly or implicitly.
  • Ensure that the kids are enrolled in a financial program before you give them an allowance. Just as you wouldn't let your kids drive without going for driving classes, it's important they understand how money works before they are trusted with any.
  • Financial literacy should be a precursor to investing. Don't let kids anywhere near investing if they don't first have a good foundation in financial education.

Copyright © 2022 Khaleej Times. All Rights Reserved. Provided by SyndiGate Media Inc. (Syndigate.info).