If you walk into any school, especially in India, the general emphasis is on three key subjects: English, Maths, and Science. These three subjects are considered to be fundamental in building the academic base and career of a child. However, stressing on particular subjects takes away the focus from other significant skills like speaking, adulting, basic life skills, and financial literacy. The last one is critical as it helps to mold the future of your child. However, before talking about the importance of financial literacy for children, let’s first look at what is meant by financial education.
Financial education is the confluence of economic, credit and debt management, to make a financially informed decision that is integral to our everyday lives. Financial literacy in India includes the basic understanding of how to manage money, how a bank works, how to create a bank account, what is a credit card and how to avoid debt. In a nutshell, financial education helps us in making responsible, informed decisions that would have an immediate impact on our daily life.
The lack of financial literacy in India is prevalent all across the country. The problem is just not limited to emerging or developing countries irrespective of the class or landscape. The basic understanding of how to manage financial risks effectively and avoiding financial pitfalls can come in handy, and this needs to start early in life. Let's look at why understanding the importance of financial literacy is the need of the hour and should be instilled in every child.
The lack of financial illiteracy can cost you heavily, and various factors also make financial decision-making a lot more difficult than ever. Five trends that are converging to demonstrate the importance of financial literacy guide are:
Lack of Confidence to Take a Firm Financial Decision
Consumers are now believed to be shouldering their financial decisions, and that is unsafe. Earlier, the past generations depended on pension plans to fund the rest of their retirement lives. However, the scene has completely changed as pensions are more of a rarity now than a norm, especially for the new generation. So, the lack of financial education can prove to be detrimental.
As consumers, we are perpetually stuck in the horns of a dilemma on what to choose among various investment and savings schemes. All these plans offer varying interest rates and maturity benefits, and it needs a significant amount of financial literacy, to take the right decision. Moreover, such decisions can always impact your ability to buy a home, finance an education, or save for retirement and much more.
Longer Life Spans
With the advent of medical knowledge, we are living longer and better, which means that we need more money after retirement than what the prior generations did.
The ever-changing financial landscape is very dynamic, as anything can influence you. Taken together, these factors can cause conflicting views and difficulty in creating, implementing and following a financial roadmap.
Spoilt with Choices
Banks, brokerage firms, insurance firms, credit card companies, mortgage companies, financial planners and other financial service companies are all vying for assets, creating confusion for the consumer.
Although various factors such as income, social norms, and other behavioral biases influence people‘s expenditure, budgeting skills can save the day. Teaching your kid on how to budget from a very early age imparts a sense of financial awareness and responsibility to them.
Encourage Them to Save
Most of the people in India are unaware of how to save. Besides, they spend all, or most, of the money they earn each month on various consumer goods. There is a substantial societal and cultural pressure, including recurring advertising and discounts by companies, that have significantly contributed to the spending habits of Indians. Encouraging your kids to save each penny will help them understand finance. Setting goals that your kid's desire, giving pocket money for chores, and asking them to write down their expenditure can promote good saving habits and also help spread financial literacy in India.
Most of the Indian youth fail to understand the very aspect of independence as they are dependent on their parents at least until they are 24 years of age. Ensuring financial independence for your child is crucial as it will prepare them for today's cut-throat world. Teaching them about the basics of debit over credit will provide a sound financial grounding later in their life and also offer a robust financial literacy guide.
The lack of financial literacy in India can lead to compromised financial situations. Equipping your child with financial education is the best way for them to make informed choices about their upcoming financial future.