As early as 2005, the OECD recommendation advised that “financial education should start at school. People should be educated about financial matters as early as possible in their lives” (OECD, 2005a). It is important to establish early foundation in financial literacy as children today will not only experience complexity in financial products but also bear greater risks in their adulthood as compared to their parents.
Most children start handling money independently once in college with little or no understanding of how to distribute money for the pursuit of different activities. The large sum of money in their account and a card to pay with, makes them indulgent and face consequences of an ill-informed financial decisions. They don’t think much before swiping that card and tend to spend first for the things they like.
From junior school itself students should be taught elements of financial literacy. For example, getting children to plan their budget for the month in advance based on discussions around what is needed and affordable. Recognize bank notes and coins and the purpose of money or calculate correct change.
Students in the middle school could extend their classroom learning to real life situations where they apply their understanding of calculating percentage increase in their spending from one month to the other, learn to use the spreadsheet to plan their budget for the year, convert from one currency to the other etc. This not only helps them to develop numeracy and literacy skills but also generic cognitive skills for assessing, comparing and contrasting, extrapolating and evaluating in financial context.
Furthermore, understand the difference between paying by cash, card or making an online transaction. Understand that money is used to pay for goods as well as services. Encourage them to speak with the carpenter or the plumber when they are called in for repairs. It will help them learn to negotiate and engage in real life financial transactions.
As students move to senior school, they could start to make decisions such as, which mobile phone contract is better, how to use their pocket money, contract agreements for various products that the family is buying, calculating kitchen expenses. Develop an understanding of income (in the case of a college students, it would mean the money received from parents for the month) and expenses. Draw out a budget to plan their spending and saving. Yes, the concept of saving to build wealth through compound interest is important for them to understand at this stage.
Recognize and understand the various ways of receiving and transferring money to people and organizations. Understand transaction fee incurred to facilitate these transactions. Develop the understanding of applying for a loan and the interest charged as they start preparing for college.
When they are engaged from young age, they learn to make more informed and responsible decisions. Decisions that are not affected by emotions and psychological factors but are rooted in experience.