Praneeta Mahajan
Hamilton, January 19, 2023
Financial habits develop from a very young age- between 7 to 9 years old. And those who are not taught how to manage, value, and work for money, lack the skills required to be self-sufficient. This impacts the child’s future finances, self-esteem, relationships, and overall enjoyment of life as they mature into adulthood.
Parents, schools, and third-party providers are the first line to ensure our children receive the best possible financial education. Sound knowledge of finance encourages students to use high-level thinking skills. It is designed to help them develop systems and behaviours that lay the foundation for sound management of their money.
Financial literacy is as essential as learning communication in English. It is an important aspect of effective holistic education.
Simply put, Financial literacy is to have proper knowledge about money and have the set of financial skills to understand and apply to make the right financial decisions, big or small.
Financially literate people have various financial skills, including personal financial management, budgeting, saving, and investing. They develop self-sufficiency, which allows them to achieve financial stability.
Finance and Young Minds
Creating healthy financial habits, such as regular budgeting and building credit, is just as important for teenagers as adults. However, it is common for teens, who are learning how to handle their finances, to encounter money mishaps and mismanagement.
Parents and caregivers need to discuss financial matters with their teens and teach them to build strong financial practices. Teens can increase their financial literacy through money management principles, spending and savings practices, understanding credit and insurance and more.
Almost three-fourths of teens feel they lack the financial knowledge to handle money matters properly, according to a Greenlight survey. It also stated 86% of teens want to start investing, but 45% don’t because they don’t know how to.
Tools in your toolkit
Dr Wood, Director of the Financial Education and Research Centre at Massey University said “Financial literacy is important but financial well-being should be the goal for us as a society. The teens and young adults need to know how, when and where to use their knowledge about money.”
She said, “we need to equip these young minds with the right tools, which should be upgraded constantly as their situations change so that they feel empowered to manage the most vital resource, which impacts every aspect of one’s life.”
Dr Wood explained that over the last decade, banking and money-related behaviours have changed drastically. The risks are higher and access to money is easier in today’s world of Open Banking systems.
She said, “That makes it vital to have a better understanding of money, our changing attitude towards financial management and the need to be aware of both the opportunities and precautions that need our attention.”
Understanding where your money goes is part of proper money management. Most teens spend the bulk of their money on food, clothing, accessories and cosmetics. A solid foundation of financial knowledge allows you to build and maintain a good credit standing — and the earlier, the better.
By learning about smart financial practices and how to differentiate needs and wants, you can start building a healthy relationship with money.
Growing with money
The more comfortable you are discussing your financial situations with others, the better your relationship with your finances will be. Having a healthy relationship with money means appreciating good money management practices and stopping feeling guilty about spending money.
You can do several things to nurture a positive relationship with money. Here are some techniques you can try.
Discuss money matters with your family. Treating financial discussions as taboo or an adult-only subject can lead to feeling uncomfortable about the topic. You may also avoid sharing your monetary challenges, which is unproductive and can create additional financial issues.
Practice transparency is essential. When it comes to money matters, don’t hide mistakes you may have committed. If you used up all your allowance on something you didn’t need, own up to it. This helps you create accountability with yourself and may open the door to some constructive feedback and financial tips from those you share with.
Don’t feel guilty for spending. Even though you are focused on managing your finances, you should not feel bad about spending on things you need (or want). It is OK to reward yourself now and again and some purchases need to be made outside of your budget.
Do not compare your finances with your friends’ as comparing your spending behaviours and purchases with others may lead to inaccurate conclusions and create an emotional response to financial matters. Everyone is different — from their spending habits to their overall financial situation.
Time and Value
The time value of money is the concept that the amount of money you currently have is worth more than it would be in the future because of its earning potential. This concept can help you make sound financial decisions and get the most out of your money. The time value of money is essential to financial literacy. You can apply to several areas of money management — savings, investments and purchase power.
Healthy Money Management
Some common financial concerns teens experience include not earning enough money or spending too much. Sometimes, financial decisions are impacted by the pressure of trying to fit in with a group or continuously saying yes to outings without adhering to a budget. Having effective money management skills can help you handle your finances better.
Tracking your money, making required adjustments, creating a budget, setting up an emergency fund, and starting an investment fund are some ways of creating that healthy relationship.
Dr Wood said that learning the ‘delayed gratification’ principle is the key. She explained that earlier generations have lived with the mindset of ‘First save, then spend’ but nowadays, the trend is to ‘Borrow, Spend, Pay’ and the paying stage causes stress.
Dr Wood emphasised the need for parents to be good role models and be prudent in their money skills. She said “as the first teachers, we need to ensure our children grow up with healthy money behaviour at home. This includes teaching them about basic ground rules about money at home, which can be strengthened by schools, tested once they go to university and then put in practice once they start working.”
Negative effects of borrowing
Ideally, your expenses should not exceed your income. Sometimes, it cannot be helped. When this happens, you can start to accrue debt. However, not all debt is bad. Some debts, such as mortgages or student loans, can help you achieve a better quality of life.
If you are unable to manage them properly, it can eventually have a negative effect and may impact your mental health. Mismanaged debt can also lead to poor credit standing, which can create a negative credit profile.
Differentiating between good and bad debt hence becomes a valuable lesson.
The investment advantage
Investing is putting your money into something anticipating it will yield a larger future profit. It’s one of the best money management methods to help you reach larger financial goals, such as buying a house or having a retirement fund.
If you start investing during your teen years, time will be on your side and likely will provide you with a larger profit. According to a recent financial literacy study, most teens are invested in investing, but less than half don’t pursue it because they don’t know how.
Once again, having conversations with experts at your local bank, and your parents, attending workshops on finance and reading on the subject might help.
Literacy to Wellness
In today’s age, all of us must have healthy relationships and the right number of boundaries in all relationships. Our relationship with money is no different.
Victoria Shortt, CEO of ASB Bank said “Our purpose is to accelerate the financial well-being of all New Zealanders, and it is what we mean when we say we want you to be one step ahead. Financial well-being is about a stress-free relationship with your money and being able to cope with the ups and downs. We know everyone’s journey is different and it is our job to ensure to be there for you when you need it the most.”
Michelle Tham, a banker by profession said “Money well-being starts with a good saving habit. It is about putting a little money aside regularly. It gives you something to fall back on in case something unexpected happens. It opens up more opportunities and gives you more choices if done right. Start with small, realistic goals. Even $10 a week will give you $500 in a year, which is a great start.”
Praneeta Mahajan is an Indian Newslink correspondent based in Hamilton.
