Financial literacy is an important concept that everyone must be familiar with, but that doesn’t seem to be the case. In the U.S., 18% of 15-year-old respondents are not familiar with simple, fundamental financial skills. And worldwide, only 33% of adults are financially literate.
Bad financial decisions can lead to lifelong problems. Understandably, the education systems in several countries have different priorities. But one that they must all put more effort into is providing the youth with effective financial education. It should be accessible to all, regardless of socioeconomic status. By learning financial skills at an early age, the youth will be able to live a great life.
Benefits of Financial Education
Financial literacy refers to one’s ability to manage financial resources to achieve financial security. Becoming financially literate can benefit the youth in many ways.
Build a Good Credit Score
If the youth are equipped with the right financial skills, they’ll be able to build a good credit score early on. And it opens doors to great financial opportunities. For example, if someone has a good credit score, they’ll be more likely to get approved when they apply for a car loan or a mortgage. They’ll also get better interest rates.
Be Able to Live Independently
A person who knows how to manage their finances can live an independent life more easily than others. This is because they’ll know how much to budget for their living expenses and avoid overspending. So they won’t need to rely on someone else to pay bills.
For example, one thing that many young adults spend money on is rent. For some, when they get a promotion or a better-paying job, they tend to also upgrade their lifestyle. But that’s exactly what can lead them to a financial crisis. If they get a place with a higher rent, their other needs will be affected. Someone who’s financially literate will know that if their current place fulfills their need, which is a safe place to live, upgrading is unnecessary. They can simply save the extra money they’re earning or invest it somewhere.
Build One’s Wealth
With good financial skills, a young adult is more likely to build their wealth early on in their life. For example, if the youth are taught about investments in school, they will be willing to take the risk of starting investments, whether insurance or stocks. And in growing wealth through investment, time is very crucial. Someone who started investing at an early age, say 21, is more likely to yield higher returns than someone who started in their 30s.
The youth will also be able to build an emergency fund if they know how to effectively manage their finances. As a result, if they do encounter an emergency, they will not burn through their savings
Avoid Being Trapped in Debt
Along with building their own wealth, a financially literate young adult will avoid becoming a slave of debt. Since this person knows how to make sound buying decisions, they are less likely to overspend or buy something out of impulse. So they won’t need to borrow money from others just to get by. And if they do need to borrow money, perhaps to acquire a property, a financially literate adult will know to only borrow what they can repay.
Teaching Financial Education to the Youth
For the youth to experience all the benefits above, the education system needs to do its part. A good start is to include financial education in the school curriculum. For example, schools can offer elective financial literacy classes. Or they can be required. Another option is to integrate financial topics into other subjects, like mathematics, economics, and social studies. Doing so will help students not only learn about these subjects but also how to apply them in making financial decisions.
And to implement the integration of financial education in schools, educators must be trained and given adequate resources so that they can properly teach the subject. Educators must understand the importance of financial literacy for the youth. They also need to determine the best teaching strategies to use in teaching financial literacy.
More and more adults are sinking into debt these past few years, especially during a global pandemic. To help the youth avoid the same path, they should be formally taught financial literacy in school. They need access to resources to know how to make wise financial decisions from a young age. If they get proper instruction on financial literacy, the youth can bring this knowledge to their adulthood and live financially secure lives.