Why is financial literacy important for children?

Last Updated: 3 May 2023

Indian families love to talk to their children about history, culture, mythology, values, ethics, character, etc. Ask them to discuss money with their kids, and they feel their children are not old enough. Let us face it; your child does not have to have a prodigy to learn basic financial literacy.

We live in a world where Mozart gave his first concert at the age of 7, Adi Shankara mastered the four Vedas at the age of 8 and Abhimanyu learnt the art of entering into a Chakravyuha when he was still in his mother”s womb. Do we still believe that young kids must not be allowed to get financially literate?

Teach them young and watch them grow

It is said that a habit is like a cable because you weave a thread of it each day and at least you cannot break it. Like bad habits, good habits are also learnt early and they are learnt at home. Good money habits are no different. When you inculcate financial literacy in kids at a young age, they end up becoming financially responsible adults. For example, children should be taught at an early age that there is power in saving. They should be taught to avoid borrowing or living beyond their means.

What Raju learnt from pebbles?

Raju was a young lad but an absolute spendthrift. His parents were tired of trying to reason with him. Then his dad hit upon an idea. He asked him to collect one pebble and put it in a sack and double it next day. So at the end of the second day he had 2 pebbles and at the end of 4 days he had 8 pebbles. By the 10th day he had 512 pebbles and the sack was not enough, so he used a large bin.

By the 16the day he had 65,536 pebbles and he gave up saying it was just not possible. Then his father asked him if he put coins instead of pebbles would he be happy. Raju’s face lit up but he quickly realized what his father was getting at. He had understood the power of compounding. By spending money extravagantly, Raju was collecting pebbles instead of coins. He never forgot the lesson on savings and compounding after that day.

Why is Rajua’s story so important?

Like any modern-day kid, Raju was also given to irresponsible spending. But there are 3 important points that emerge from the story.

When children are young, they normally rely upon their parents to lead by example. Hence teaching your children financial literacy is not only about knowledge but also about how the example is shared.

Children are willing to experiment and learn as demonstrated by Raju. If you get into a debt trap at the age of 45, not only your financial situation but even mental conditioning does not help you to come out of it. Good finance habits at a young age can help.

Cognition and receptivity to new ideas are the highest when you are young. The reason Raju changed his opinion about money so quickly was his receptivity to a new idea. As they grow up, it is increasingly difficult share such learnings with them.

Financial literacy; the earlier the better

Don’t worry if your child is not old enough to sign contracts. They can always learn about savings with a piggy bank. They can write down budgets and record expenses in the humble notebook. Let them learn banking operations. The options are limitless. Age is just no barrier to get financially literate.