Would you believe it if you were told that the majority of Malaysia’s young adults between the ages of 18 to 30 are accumulating debt by spending more than they earn every month? According to Finance Minister, Tengku Datuk Seri Zafrul Abdul Aziz’s statement in 2021, 40 percent of millennials spend beyond their means. In another worrying development, according to Bank Negara Malaysia, 47 percent of Malaysian youths have high credit card debts.
Many rely on credit cards to make ends meet every month which results in higher interest payment on their debt. Shockingly, this said debt is separate to car loans, personal loans, mortgages and other financial expenses that are upholding their preferred lifestyle.
Would we want to see our children drowning in debt as soon as they step into the real world? Definitely not! This highlights the importance of instilling financial literacy in our children.
What is financial literacy?
Financial literacy is the ability to understand and use various financial skills such as personal financial management, budgeting, and investing. To simplify, being financially literate is knowing how to manage your money. Currently, financial literacy is missing from our education syllabus. Therefore, an alternative way to learn can start from home. With practical applications during daily routines, our children should be able to manage their finances well into adulthood.
Educating our children on spending money the right way is as important as teaching good manners and habits. From financial literacy, children practise the acts of saving for specific goals and spending on necessities based on how much they can afford. From this they will achieve a financially stable lifestyle resulting in a happier mindset.
The importance of financial literacy in children
Generally, adults who were not exposed to financial handling during their childhood wound up being bad investors with poor credit scores. This is because they are not equipped to recognise signs of bad financial choices. An example would be joining fishy financial activities with taglines like ‘get rich quick scheme’.
Additionally, once our teenagers turn 18, he/she will be issued a credit score. However, many of them do not know what that score is for and how that score is calculated or what are the steps to maximize that number. These young adults will also encounter the concept of debt as more than 50% of all students in Malaysia have to secure a student loan to get through college.
To avoid any resulting financial troubles from above, children must learn and be made aware of financial literacy by:
- Making it clear to them the difference between needs and wants during spending.
- Showing them examples of making an informed and practically viable decision when thinking whether to save or spend.
- Noticing that money is needed to afford their desired lifestyle of comfort and luxury.
- Encouraging them to be financially independent and not relying on others or external aid.
- Realising the difficulties to overturn wrong financial decisions.
This education and knowledge are crucial to the management of their finances when children reach adulthood. This is so that not only they are able to sustain and pay back their student loans diligently, but also to leverage their credit growth which strengthens their financial standing. As parents, we would feel secure to know that our children are confident in being financially independent.
How to convey financial literacy to my children?
During their childhood, our children get excited when their savings grow even if it is from a few cents coming from their festive pocket money or house chore allowances. Interestingly, children save even more and with considerable patience when there is a goal set up for them such as to buy their desired items like a Kindle, iPad and so on.
As they reach adolescence, they start developing habits. They observe and adopt the values shown by their parents. By then they should know about earning, saving and shopping habits along with differentiating between needs and wants. Thus, they have an understanding of their spending and financial limits.
By adulthood, they will be mentally prepared to handle more challenging economic situations like managing their student loans cost-effectively and efficiently in college.
Here are some steps for you to implement practically in order to teach financial literacy to your children:
- Start early and start small – Set goals for your children at a very young age. Fix an allowance and teach them to ‘save’ and ‘spend’ under your supervision. Such goals will invoke a feeling of interest in them, ultimately making them want to understand how money works.
- Include their opinion in financial decisions – Children learn more from what you do than what you say. Help them gain some confidence in financial matters by making them comprehend the budgeting of your household, how much you earn, where to spend and how much to save.
- Educate about earning and investing – For older kids, tell them about ways to earn money and how to increase the income by investing the savings. Teach them about the risk, chances of losing the *investment money, what to avoid and how to make good investment decisions. Tell them about your own financial experiences and their implications. *(Investment can be in the form of starting a business, investing in unit trusts, cryptocurrency or properties and more).
With the help of your teachings, they will develop the concept of how the world’s financial system works and realise the importance of financial literacy.
On a Final Note
In today’s world, lack of financial stability brings misery, stress and lower standards of living. This is where financial literacy at an early age plays a part in helping children make less costly mistakes in their adulthood.
It’s important to teach children about money, but it does not need to be complicated or scary. With the right financial literacy skills, children learn how to manage each part of their financial lives — including their budget and savings — to grow into healthy, confident and successful adults.
We provide free short seminars for children, youth and small groups about financial literacy. Do let us know if you would like to book a session with our life planners at the Contact Us button below.
