Understanding Financial Literacy
Financial Literacy for Families
Financial literacy refers to the understanding and knowledge of basic financial concepts. Parents and families can engage children at different stages of their development to teach them how money is managed toward achieving family goals. This helps children build a solid foundation for managing their own finances in the future, especially as they plan for college and beyond.
Understanding Costs
Children benefit from understanding the costs associated with everyday expenses that are typically provided by the family. For example, allowing children to understand how many hours are worked to afford a family outing or to buy a gift for a relative can teach them that money doesn’t grow on trees. By pairing the idea of costs with the effort of hours worked to earn those funds, children can gain a sense of the real value of money.
Goals & Savings
Some family expenses require setting aside money over time to make larger purchases. Sharing these types of savings strategies with children helps them see the benefits and challenges of saving for their own goals. This approach not only encourages immediate savings habits but also helps children understand the importance of long-term financial planning as they prepare for bigger financial commitments, like college.
Needs vs. Wants
Teaching children the difference between “needs” and “wants” is essential. This distinction can help them make smarter decisions when they begin managing their own money. Understanding that certain expenses are necessary while others are discretionary will serve as a strong foundation for future financial decisions.
Budgeting Skills
As children grow older, involve them in the family’s budgeting process. Questions like, “How much is our rent?” or “How much do we need to save to meet our monthly expenses?” help them develop real-world financial skills. Families can also discuss prioritizing “needs” over “wants,” such as deciding if a family should skip a non-essential purchase in order to pay rent and maintain financial stability. These skills are critical for understanding the value of an education and the financial commitment required to complete a degree. By learning the basics of budgeting early, students will be better prepared to manage their finances when they are on their own in college.
Avoiding Credit Cards
Credit cards can seem like an easy way to buy things, but it’s important for children to understand that credit cards are not magical sources of money. Explaining how interest works and how credit card debt can quickly escalate if balances aren’t paid off in full will help them make more responsible financial decisions. This knowledge can prevent costly mistakes when they eventually begin using credit cards on their own.
By teaching financial wellness early, children will develop the skills necessary not only to navigate the costs of college but also to set themselves up for long-term financial success. These foundational lessons will help them make informed decisions and approach their finances with confidence as they move into adulthood. At the University of Arizona, the Thrive Center has staff and programming that focuses on Financial Wellness. The initiative seeks to equip students with the knowledge and tools they need to confidently manage their finances during college and beyond.