What is the right age to teach Finance Education to Kids

The whole world is going through an unprecedented crisis and the problem is bigger for countries like India. For a large population that has low savings, it is becoming difficult to survive in these testing times. The problem does not lie in the fact that earning has stopped, the problem is that we are not managing money properly. Recent research suggested that more than 85% of earning Indians were not financially prepared to handle this unprecedented situation. None of us actually could foresee such situations but not being financially prepared for unforeseen circumstances is very dangerous.

Actually, these low or no savings are just the tip of a much bigger problem, the problem of financial illiteracy. Financial illiteracy among Indians leads to debt-traps, low savings, and unplanned loans. The problem is exacerbated by the easy availability of cheap loans and EMI options. Recent research has shown that personal loans in India are growing at the rate of ~15% every year while household savings in India are declining at a rate of 5% every year. More than 13 million people in India fall in category of non-savers and more than 45% of Indian population do not save regularly even for retirement. Millennials opting to go easily avaiable ultra short-term unsecured loans, infamously called Payday loans, and getting into dept traps is also on rise. The share of millennials in new lending went up by 4.6 percentage points between 2015 and 2018 and within millennials, borrowing by people between 25-30 years has grown the fastest, driven by small-ticket personal loans for the purchase of consumer goods.

Financial education and literacy are virtually essential for all age groups. And the sooner in our life that we begin acquiring it, better we will become in managing our finances. The age of 8-14 is very critical for developing a child’s financial behavior. It is during this age that children form spending and savings habits and these habits last for a lifetime. But what are we doing to ensure our kids become better in money management in the future? Frankly speaking, Nothing!!! 

Indian students are taught how to earn money but they are never taught how to save and manage money. Indian children learn about Science, Mathematics, Social Studies and Spoken Languages, and we are globally renowned for these skills but our children do not learn financial management and never acquire money handling skills which are most important when they grow up. This leads to problems like credit card traps, education loan defaults, and virtually no financial planning for the future. 

Financial Education is a process-oriented approach to teach student money management. Financial education is virtually non-existent in Indian schools and Indian parents shy away from talking to children about money as they feel children should focus on studies only. But a child at the age of 8 starts understanding the concept of money and by the time he reaches age 12, he can understand savings and investments and also starts forming a financial behavior related to spending. 82% of students feel they should get financial education but more than 48% of these students have no access to financial education. 

At Cerebro Kids, we work with children from class 5th and above to make them understand the importance of financial planning in life. Our young students of class 5th -8th learn about long-term, short-term, and contingency financial plans. Our students learn about preparing monthly budgets and tracking them. They also learn about goal-setting and financial planning to achieve those goals. Our older students of class 9th and above learn about taxes, higher education in finance, jobs in finance, and financial institutions around us. This knowledge is what we term as Knowledge-That-Matters. It helps them in being better prepared for their higher education and professional-choices decisions. Our students learn through various activities and experience-workshops. Interactions with industry-professionals help them in understanding real-world finance better.

Our workshops are usually focused on one real-world concept and students experience that real-world concept hands-on. Our workshop on investment banking has been most liked by our students. For our younger students, we start with their dream to buy something. Then we work with them on how to arrange finances for realizing their dream. Along the way, students learn about expenses, savings, investments, spending, taxes, etc.

Another key activity that we do with children is financial decision making. We present several difficult financial situations for our students and work with them in groups to come to a decision. This helps them in developing critical thought processes and makes them confident decision-makers.
While this comes as no surprise to us, but by the end of the program, our students can give critical responses to questions like 
--> “You lend part of your pocket money to your friend. Your friend promised to pay you back in one week, but he doesn’t. Now you need some money. What should you do?”
--> “You lend money to your friend. Your friend repays you. But he again pays you next week. What should you do?”
--> “You spend all your pocket money on video games and now you do not have money to buy your favorite burger from the school canteen. You really want to eat it. What should you do?”
The different ways in which students think really surprises us but in the end, answers usually come down to: 
--> “Tell the reason for the friend why you need money”
--> “Do not accept the money the second time”
--> “Plan expenses better next time” respectively.

In one of our activities, a student asked us about Why Sukanya Samridhi Yojana is only for the girl child and not for the boy child. His question was what wrong has been done by boys that they do not get tax incentives. Perhaps a logical and prudent financial question from a 12-year old. 

Recently we organized a market place activity to teach children the concept of demand, supply, bargain pricing, etc. Our students learned how buying and selling take place. Our observation was children as young as age 8 were happy when they sold some things for profit and felt disheartened when they sold things for loss.

In short, financial literacy is not just a need but it has become “Need of the Hour”. If taught at the right age of 8-14, financial literacy helps students in becoming better money managers and in planning their future finances better.  

If you’re interested to find out more about how we bring the world of personal finance to life for children,click here to get in touch.

Image placeholder

Arpit Gupta

MBA IIM Lucknow
Arpit Gupta is an IIM Lucknow grad with experience in multiple fields including business development, product management and business strategy. He loves playing badminton and swimming.