According to the OECD, financial literacy is the combination of awareness, knowledge, skills, attitudes and behavior needed to make informed financial decisions and ultimately take care of one’s own financial well-being. It is therefore a mixture of (self-)reflection, theoretical knowledge and practical skills that ultimately allows us to go through life without money worries.
10 key money handling skills
All well and good, but what does this mean in concrete terms? Based on an international comparison of curricula and research findings, the following ten important skills can be summarized that make up the financial literacy of children in primary school:
- Know the function and value of money
- Have awareness that money is a limited resource
- Be willing to defer needs
- Be able to distinguish between value and price
- Know the distinction between things you need and things you “just” want
- Know spending preferences and be able to give reasons for them
- Know the basic workings of advertising and be able to resist temptations
- Keeping track of one’s own expenses
- Know different forms of income
- Be able to name short- and long-term savings goals and achieve them
Now, at first glance, this list looks very comprehensive. How are you supposed to teach a child all these skills? The good news is: children learn quickly and they learn primarily through imitation and practice.
For example: Shopping
How to incorporate basic financial literacy topics into everyday life is easier to illustrate with an example. Even when shopping at the supermarket, there are numerous opportunities to talk about responsible money management:
- Thinking out loud: while shopping, explain to your child why you are choosing a specific product option
- Price comparison: compare the prices of a product category and think together about why one is more expensive than the other
- Need vs. Want: Divide your shopping into two categories – which items in the cart do you really need, which do you just want?
- Own budget: give your child a small budget to use on their own when shopping
These examples clearly show that it’s not about teaching theory, but about setting a good example, letting children take part in decision-making processes, giving them the necessary leeway to try things out for themselves – and above all, not treating the subject of money as taboo, but addressing it openly and honestly. After all, financial literacy does not (only) mean being familiar with figures and interest rates. You need more than just theoretical knowledge to handle your own money responsibly. This topic is also about people as individuals, their values, ideas, fears and desires. As a pilot of one’s own money life, it is about changing one’s own behavior in a positive way.