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Why Financial Literacy is so Important to Me

financial literacy

I know I’ve said it before, but I love my kids! I know it may sound dopey and over the top, but I would do anything for them. There’s very little I could not envision doing for those little stinkers you see above.

‘I thought this was a post about financial literacy?’ you ask. Well it is. Let me explain…

We’re a Society Built on Debt

 

Not to get all Dave Ramsey, but I HATE debt. I know there can be times in which you can wisely leverage debt to better your overall financial position, but those opportunities can be few and far between.

What I’m talking about is consumer debt. Whether it be spending like crazy on credit cards or taking out crazy long car loans we’re a society that is comfortable with debt. I don’t know where I’ve read it in the past, but it’s what I like to call the payment mentality. Essentially, it boils down to not batting an eye when it comes to taking on more debt. I’ve shared it in the past, but the sponsors of Financial Literacy Month (which starts tomorrow by the way) share two crazy numbers:

  • We carry more than $2 Trillion in consumer debt in America
  • At least 30% of Americans have no extra cash at the end of the month

Taken in light of the fact that retirement account balances, on average, are so minimal it’s clear that priorities are just a tad off to say the least. Back to the point of the post, I care because for many it doesn’t have to be that way.

Financial Literacy is not all Education

 

I’ve mentioned before how vital it is that we have more financial literacy education in schools. This doesn’t have to be “advanced” education by any means, but basics in dealing with debt, balancing a checkbook, basic investing and so forth. I know you can debate whether or not this should go on in the home or at school, but I say why not both? :-)

Anyhow, education is only going to go so far. The other major component of improving financial literacy is dealing with the behavior issue. Working in the advertising industry, we see this all the time, but we live in a ‘spend now’ culture. Companies spend all sorts of money convincing us that we need a given item or product and do a great job at convincing us that we can’t live life without it.

Once that behavior begins to be stoked, the lack of financial literacy education comes in and enflames it to a worsening state of bad financial decisions. I know that is a large reason why I racked up credit card debt and I’m confident it’s the reason others make unwise financial decisions – because they know no better and their behavior is not held in check.

As I look at our children, I’m not naïve enough to believe that they’ll never make mistakes in their lives. In fact, I know they will. However, if we help model and shape their behavior I believe that those mistakes, at least the financial ones, will be mitigated, allowing them to find ways to make their money work for them as opposed to being enslaved to it in a never-ending cycle of increased debt.

This is easier said than done, of course, but I believe we can encourage financial literacy by living it out before them and giving them a hands on experience with finances as they grow. A large part of this comes through not making money a taboo topic, like my friend Shannon at The Heavy Purse says, but making it something your children are a part of. So, over time, they become more comfortable with it.

It’s My Responsibility

 

Ultimately, why financial literacy is so important to me is that it’s my responsibility. I’ve spoken before about teaching kids about money and it’s a responsibility that I don’t take lightly. As I look at my responsibilities as a father I see the following (and not necessarily meant to be all inclusive):

  • Love on them
  • Provide them food and shelter
  • Protect them
  • Put their needs ahead of my own

As I look at that list, and knowing there are many others that could belong on it, I see teaching them to become financially literate as being right up there. Why, you ask? It’s quite simple really – I need money to do all but the first one. If my wife and I don’t manage our finances the way we should then how can we do these things and more for them? We can’t.

Simply put, financial literacy is so important to me because I want a better future for them. Better than what I came up with and not saddled by the burden of debt, but living the life they want because they’ve been wise in their financial decision making.

 

Why is financial literacy important to you? At what point does it become a behavioral issue as opposed to an education issue, in your opinion? Oh, and just for fun, what caption would you give to the above picture?

 

Photo courtesy of: Nicole S

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I'm the founder of Frugal Rules, a Dad, husband and veteran of the financial services industry. I'm passionate about helping people learn from my mistakes so that they can enjoy the freedom that comes from living frugally. I'm also a freelance writer, and would love to help out if you have the need. If you're wanting to grow your blog, check out my blog coaching services to see how I can help you take your site to the next level.

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53 Comments

  • I don’t know if I hate debt, but I think it needs to be viewed for what it is. Debt has enabled me to buy a house and shelter my family, it has also enabled me to invest in certain assets with far higher leverage than I otherwise could have.

    I agree 100% with you regarding your view points on kids though. Now that I have a son my world view has changed drastically. It was almost like a light bulb moment went off in my head that said – “You are responsible for teaching this little man about life”. Life includes finance and all the little things that you can do to better your financial position.

    While I want to succeed financially to provide for my family, I also want to be a good role model so that my son knows what it takes to succeed financially.
    Glen @ Monster Piggy Bank recently posted…Online business update a few months onMy Profile

    • John says:

      I agree Glen, though my point was in regards to consumer debt as debt for a mortgage is generally considered “good” debt.

      That said, I could not agree more about the change in worldview. I had that same exact feeling and one that I use to drive me.

  • I think that financial literacy is incredibly important if there is to be any hope of the next generation learning from this generation’s mistakes and doing better. Parents often want their children to lead a better life than they did, and teaching children about money is one important way to help make this happen. I think it’s a much easier concept to teach to children than adults, since adults may be set in their ways or may have already developed poor habits.
    Dee @ Color Me Frugal recently posted…How to Save for Retirement the Awesomely Strange WayMy Profile

    • John says:

      That’s a great point Dee! While I think you can teach adults about financial literacy, you’re going to face many more challenges than if you’re dealing with children.

  • Liz says:

    I completely agree with what you said about knowing no better. If people know better, they would do better. I also think that there would be nothing horrible about like you mentioned teaching kids a little bit about financial literacy. It feels like back a generation or two, society was much more okay with teaching kids more practical things in school. For example, my mom remembers in her home economics class planning and BUDGETING for her future wedding. I know that is a little silly, but still those were some practical and useful skills. I feel really lucky myself that my parents are financially literate and were able to educate me from a young age. I would be lost without their guidance!
    Liz recently posted…Are Museum Memberships Worth the Cost?My Profile

    • John says:

      I remember hearing the same thing from my parents and it seems that we have gone away from lessons like that for a variety of reasons. Maybe it doesn’t have to apply to weddings, but the same basic ideals still apply.

  • We’re also not fans of debt. That includes mortgage debt. It’s definitely a better form of debt but it’s debt none the less. We see financial literacy as a way to become an independent, confident, productive adult. We would like our kids to understand the pros and cons of money and financial instruments like credit cards and debt. But we also want our kids to know that happiness does not come from spending money. Hopefully this will help them make those good financial choices.
    GamingYourFinances recently posted…Our $200,000 Life Changing EventMy Profile

    • John says:

      “But we also want our kids to know that happiness does not come from spending money.” I could not agree more! Yes, it can provide things you might enjoy but so much of it comes down to finding contentment through other avenues than just stuff.

  • Great point, John. I hadn’t thought about the behavioral side to the equation. There are plenty of people with enough financial education to understand how to responsibly balance a budget. A glaring example of this is government where the financial irresponsibility is magnified.
    DC @ Young Adult Money recently posted…5 Tips for Maintaining a Home on a BudgetMy Profile

  • Great stuff John! The #1 way children learn is through modeling adult behavior. Sure it’s important they have the knowledge of right and wrong but ultimately they will be more likely to do what we do. We can say until we are blue in the face “don’t do that.” But if we are not following through and being a positive example in our own right, it’s doubtful they will head our directives.
    Brian @ Luke1428 recently posted…Spring Break: Glorious Rite of Passage or Undisciplined Waste of Money?My Profile

    • John says:

      Thanks Brian! I could not agree more. I think the behavior is what puts the lessons into action. If we teach fundamental money skills and go out and rack up debt then we’re no better than a hypocrite.

  • I hope that I’m teaching my kids to avoid a lifetime of debt. I agree with you, John. I HATE debt. I don’t want my kids to fall into that trap and struggle.
    Holly@ClubThrifty recently posted…How to Pay Your Mortgage With a Credit CardMy Profile

  • Great post, my friend. The baby is getting so big!!! You know this is a subject near and dear to my heart too. For the sake of children everywhere, so that they don’t fall into the luring trap of consumerism, we need to teach them financial literacy!
    Laurie @thefrugalfarmer recently posted…Fire Hazards in the Home You Might Not Know AboutMy Profile

  • I think once you get past the basics, it all becomes behavioral. You can know everything about finances and still be up to your eyeballs in debt because you can’t spend/save wisely. Conversely, you could be someone that just understands the concept of compound interest and be the richest person in the room. Learn just the basics and then model your behavior to get you to reach your goals.
    Jon @ Money Smart Guides recently posted…My Personal Capital Review: Is This The Answer For Investors?My Profile

    • John says:

      Definitely agreed Jon. So much of it is the basics and then you need to implement it through your behavior. That’s what so many miss in my opinion, adjusting their behavior.

  • Financial literacy is important to me because I don’t want my kids to make the same mistakes I did. In fact, I don’t want ANYONE to fall into the same trap!
    Travis @debtchronicles recently posted…Why I Hate Credit Cards: Hotel Incidental PolicyMy Profile

  • Kathy says:

    I hate debt as well, but recognize that there are times when you can come out ahead with it. For example, right now we are totally debt free. We are considering building a new house and will probably take out a mortgage even though we have money to pay cash. We are earning in excess of 5% on our investments and mortgage rates locally are around 4-4.5%. If we sold some of our investments to pay cash, we’d incur a whopping tax bill so that is loss on our balance sheet. The mortgage interest is deductible (at least for now) which lowers our taxable income, and therefore saves us from paying more tax. I’d rather pay interest to the bank so it can go back into our community than pay taxes to the government where I an pretty certain much of it will be wasted.

    • John says:

      Oh, I agree Kathy, which is why I pointed that out and not really the point of the post. I was speaking largely about consumer debt – credit cards, car loans and the like. That said, congrats on the house and I’d likely be doing the same thing.

  • I completely agree with you that it is more about changing behaviors than educating on “facts.” Most of the work I do with clients is more behavioral finance than financial management, and there are not enough resources like this for people. There are too many other factors that make it easy for people to develop bad financial habits. And I agree it starts at home. I am vigilant with the lessons I teach my 8 year old son, and it takes time and energy to train him, but I am seeing the results of our efforts and his financial awareness is an area of great pride for me.
    Shannon @ Financially Blonde recently posted…Music Mondays – Fooling YourselfMy Profile

    • John says:

      That’s what I saw as well Shannon in my brokerage days. Many simply didn’t know what to do, but they were also making horrendous choices that came down to behavior. It does take time and energy to teach kids about these issues, but it’s so worth it in the long run. :)

  • Financial literacy is very important, I would agree there. I do think there many things more or equally as important as financial literacy but I think parents need to take a balanced approach to teach their kids about money and personal finance.
    Daisy @ Prairie Eco Thrifter recently posted…4 Ways to Re-Claim Some Free TimeMy Profile

  • Too often when the discussion on financial literacy happens people jump to investing and retirement. People can’t think about those two if they can’t even think past their upcoming paycheck. Basic financial literacy is essential.
    The Phroogal Jason recently posted…A Phroogal Update. It’s About That Time Again.My Profile

    • John says:

      Great point Jason! While those are important, for sure, that’ll mean nothing to someone who is struggling to make ends meet each pay period. Those basics are key and so much can be built off the basics, but starting with the basics (both in teaching and behavior) is vital.

  • Grayson Bell says:

    Before I was a father, money was only a means to fund crap I didn’t need. Now, I use it as a tool to make a better life for my son and my wife. We can only provide our children with the tools they need to succeed. They can do what they want with them.

    Financial literacy is important to me because I want to provide a better life for my family, but also leave a lasting impression on those that I encounter. I want to help teach others that they don’t have to be the victim to their bad money habits.
    Grayson Bell recently posted…Top 20 Money Quotes to Inspire and MotivateMy Profile

    • John says:

      I was very similar Grayson and today it’s what can I do with it to better the life of my family.

      That’s a great point about leaving a lasting impression – one that is too often overlooked in my opinion.

  • Kim says:

    Caption: “These gummi worms don’t taste like the ones we got for Christmas.”

    Having a kid was one of the reasons we decided to get our financial lives together. I can’t imagine not trying to be the best role model I know how to be for just about everything. It’s so important to start from a young age before bad behaviors get set. I’m sure she won’t always be perfect, but at least my daughter will have a good foundation to start with.
    Kim recently posted…Ideas About Self EmploymentMy Profile

    • John says:

      Lol, the kids had just finished looking for worms!

      It is important to start as young as you can, as it can establish a way of thinking before other bad habits set in.

  • I love love love this post! Thank you for writing it. Financial literacy absolutely is necessary to get ahead. However, without implanting it and adopting new behaviors/ habits, there’s no hope! It takes a lot to change, but with the right tools and motivation, it’s not only possible but likely. Thanks for a great motivational post.
    Natalie @thefinancegirl.com recently posted…Do This, Not That: 10 Habits You Should AdoptMy Profile

  • I think everything is a combination of education and behavioral modeling. I’m grateful now that my parents never let us have the latest gadgets and technology or a car. It was never about needing things now and I think that’s why I’ve been able to avoid debt.
    Stefanie @ The Broke and Beautiful Life recently posted…That’s a Wrap: I Suck At MultitaskingMy Profile

    • John says:

      I agree Stefanie! I had the same thing with my parents and if I did really want something then I would have to work and save to provide for it. They might give me an incentive to save – like if I hit 90% of the goal they would give me the final 10% or something like that.

  • Financially literacy is important to me because it helps me make smarter decisions with my money. I wish I had learned more about personal finance in high school before going off into the real world. My mom did the best she could but there was a lot she didn’t know herself so I think it’s important to have courses in school.
    Raquel@Practical Cents recently posted…The Perks of HomeownershipMy Profile

    • John says:

      I was in the same spot Raquel. I didn’t get a whole lot from my parents either, which is why it’d be good to have it both in homes and schools – then the bases are covered. :)

  • Seeing so many people struggle with debt and living paycheck to paycheck makes it even more urgent for me to ensure this doesn’t happen to my kids. I think the absolute best way to teach it is to be a good role model. If your kids see you spending on frivolous things, they’ll think that it’s acceptable behavior. It would be great if schools were more active in teaching this, but I feel like parents have a more important role.
    Andrew@LivingRichCheaply recently posted…What’s an Extra Million Dollars or Two?My Profile

    • John says:

      I agree Andrew, I think that parents play a larger role. Of course, the lessons they can get in school is important but seeing it actually lived out takes it to another level altogether.

  • MoneyAhoy.com says:

    One of my top goals in life is to ensure that our kids are financially savvy. Basic financial principles are nearly absent from public education. I agree with others that the best way to ensure good habits is to become a good role model.

    But, I think we can take it even further. Discussing with kids how businesses work, compound interest, stock market investing, etc. are all things I wish my parents did a better job of instilling in me.

    • John says:

      That’s an excellent point Derek! I didn’t see that from my parents either, but since we run our own business we really plan on working on that with our kids. We want them to be able to come to learn how/why the should hustle in order to make a better life for themselves financially.

  • Joe says:

    I plan to teach my kid all about the basic. Saving, living a moderate lifestyle, and investing. That’s the least we can do to help them get started in life. No consumer debt!
    Joe recently posted…Financial Setbacks Can Strengthen Your FinancesMy Profile

  • “how the hell am I going to get this off my hands!” :) I don’t have kids, but I am concerned about how well financially educated young people are, and with student loan debts seemingly at an all time high, that’s something that they are going to be faced with with or without consumer debt.
    Tonya@Budget and the Beach recently posted…Earthquakes & March RecapMy Profile

  • This is going to shock you but I LOVE this post. :) Okay, maybe less shocking and 100% predictable! LOL! I am with you 100%, my friend. Teaching kids how to handle their money wisely and be emotionally competent when making decisions is something every parent needs to make a priority, but sadly it isn’t even on the list of most parents. Like you said, beyond love, we need money to care and provide for our families. And our kids – no matter what career path they chose for themselves – will handle money as adults and need to know how to make good decisions. We do live in a culture where debt is seen as no big deal. People want instant gratification, not realizing the cost. We owe it to our children to help them become financially literate, especially since ever parent I’ve talked to wants their children to have a better life than they do. In order for that to happen, they need to become financially literate. And thank you for the shout-out – money is definitely not a taboo topic in our home!
    Shannon @ The Heavy Purse recently posted…5 Smart Financial Moves to Make this SpringMy Profile

    • John says:

      Thanks Shannon, and no it’s not really surprising! :) I could not agree more and great point about it not mattering what career field our kids will go into – they will all handle money on some level. Without that active teaching of basic tenets as well as living it out day by day they’re not going to have the tools they need to live a financially literate life.

  • I completely agree with your comment on the “payment mentality.” I feel like so much of the main stream society focuses on if they can “afford” the monthly payment rather than the true sum of the debt they are signing on for.
    Blair@LifeDollarsandSense recently posted…That’s A WrapMy Profile

  • DEBt DEBs says:

    We’ve been a bad example to our kids and some are currently more money savvy than others. The oldest is very frugal and diligent with managing her money (she’s moving into her third home next month). The next (from what I can tell) is paying off debt and putting into savings with some longer term goals. He also is fairly frugal, but probably spends more than he should eating out. After him comes student debt load girl who figures she’s always going to have debt. I helped her create a budget and she also shows some signs of frugality, but also bouts of reckless spending. She and the last are my current concerns. The last does not have a lot of income and money flows through her fingers. I’m sure maturity must have a big impact here. They see me towing the line now and I think it’s got them all to sit up and take notice.

    So to answer your questions:
    Why is financial literacy important to you? I don’t want my kids to end up like me.
    At what point does it become a behavioral issue as opposed to an education issue, in your opinion? I think it’s about 80% education and 20% behavioural. Impulsive people tend to be impulsive.
    Oh, and just for fun, what caption would you give to the above picture? The Three Musketeers Making Mudpies
    DEBt DEBs recently posted…Booze BudgetMy Profile

    • John says:

      I think a lot of it is a maturity issue Debs. The encouraging thing is that you’re seeing signs of “good” habits in all of them and that is something which can be built upon. Add to that what they’re seeing in you now and I’d imagine that will make them take notice.

      Lol, like the caption. :)

  • Marvin says:

    Financial literacy is one of the most important things a parent can teach a child in my opinion While life is not about money you need to have a good grasp on it in order to live the life you want. We already have plans for introducing financial literacy to our children very early and we have already had many talks on whether or not our children will even attend college.
    Marvin recently posted…Worried About Investing in Index Funds?My Profile

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