Financial education

Financial Education

Financial education is something that concerns every single human being, but is surprisingly not on the subject list of any school.
It seems that when it comes to money the approach of “learning by doing” is the one most used, but not the one that should be taken.

Money concerns everyone, children, adults, men and women alike.
But if not learned in school, how and from whom should we learn how to handle financials?

The problem of the crumbling middle class 

We have seen that the scissor is driven more and more apart between rich and poor. The middle class is crumbling. Student loans, bad-paid jobs and rising costs in health care and housing are pushing the limits of the financial capability of the majority of society. 

School does not teach money handling

The closest association children have to money when they go to school is mathematics. They learn how to count and they get mathematical problems such as: “If one apple costs 1 dollar, how much do 10 apples cost.”
Just mentioning money is not going to teach children how to appreciate and handle money though.

Outside of school they only get in touch with money through their parents. They have it and they give it to them as allowances. But nothing prepares them for the future and different amounts of money puzzle them. They have no idea of how much money they need for rent, and a 10 euro allowance for example does not even come close to the amounts of money they will have to earn when they are adults to support their livelihood.

So why do our children not know how to deal with money? The simple truth is that the teachers are not responsible for this kind of education. Financial education is a topic best discussed in the family. 

Financial education is the parents duty

Why is financial education something that children should learn from their parents? The answer is simple: For a child, the parents are the source of money. A child does not think about jobs or the need to work to receive money. A child’s first connection with money, when they think about it, are the parents.

My parents have the money, they pay for things, they are the source of the money. That is the association children have from the very start when it comes to money.
Sure, they learn about the subject in math class, but the practical portion of how to deal with money is something they see daily associated when they see their parents.

They go with them to restaurants, they pay for ice cream and other groceries and when a child wants a toy, it has to asks the parents for money.

An allowance, or pocket money, is the first point of contact a child makes with finances. But just because they get handed a few coins or a money bill doesn’t mean that they know the value of money.

Mothers and fathers teach children the value of money, often through choice. If, for example, a child wants two candy bars, but only has enough money for one, the lesson is that they either have to save more money in order to get two bars, or they have to make the choice which they want – one or the other.

Making these choices and having to save up money for a toy or something they really want is what makes them appreciate money and teaches them that “money does not grow on trees.”

Learning financial education

The lessons connected to “financial freedom” are still ones that parents should teach heir children – to some degree. Children and young adults – teenagers – will have their first real “need” for their own money when their wish for independence grows.

A few examples are: Wanting to hang out with friends, going to the cinema, maybe buying a scooter. Anything that is more than a simple candy bar and that will benefit them in reaching financial independence, they will learn on their own.

It is a process that young adults really “learn by doing”, but the groundwork, the value and importance of money has to be taught to them by the parents.

It is important, as a parent, to teach a child that money does not buy happiness. After all, money is not the one thing that matters in the world the most. But in order to live a life without struggle, financial freedom is something that everyone has to achieve.

Nobody says that one has to make 6000 dollars a month to be happy. But the essentials like groceries, a roof on top of ones head and food on the table have to be secured. And the only way to make a child realise this is via financial education in the early years.

A summer job, mowing the lawn for a neighbour, or simply saving up money you get for christmas and your birthday are the first steps for a young person to achieve financial independence and get a sense of the fact that life is not cheap.

For older people, there a specific books that deal with the topic of financial education. One of the most popular is The richest man in Babylon. It is a book that tries to set the mind straight and puts the effort on saving money. And for saving, you need to have money left at the end of the month.

Consider yourself to be a company

One way is to understand a person as a business. What does business do? They have to have a positive cash flow and invest in themselves each day. They are looking for a way to produce value and turn this into money. The worst thing that can happen is for them to lose money. 

Frugalism people are trying here to minimize the spendings for maximizing the payments. Other people try to aim for higher salaries or build up their own business. They work on the earning side. Both can be very demanding. And it can be dangerous because you can lose yourself in the process and turn away from other necessities like friends and family. 

Even with a optimizing spirit ahead, you cannot forget the idea of money. Money is not a soulless number in this point but the gratitude for helping them. You however, can put your gratitude to others by spending for their services. It is a taking and giving circle. So, whatever you do, from time to time you should spend a bit of money to feel better and cherish life. 

Degrees of financial freedom

On an abstract level, one can try to categorize the financial situation into different levels. Then, the goal is to climb up the levels for achieving a better financial situation. Here is the list:

  1. You start in full dependency as a child. The earnings and assets of other persons – usually the parents – will be spent for your benefit, as well.
  2. The first step on the is the independency through earnings. This level is achieved when monthly payments are lesser than your earnings. This means that every month your wealth will grow. Also, you can get rid of debt faster.
  3. This level is the consumer debt free situation. You have got rid of all your debts that do not benefit your wealth. Mortgages are still ok.
  4. You earn money sidewise by investments that you can refinance into an investment system again because your spendings are covered anyways. Investments can be real estate, stocks or your own company or side hustle.
  5. This level is not a necessity because some people have to deal with investment debts. Still, some people like to get rid of every kind of debt, some do not. Call this level 4 and a half.
  6. You can finance your life by incomes of sources that do not require you to spend time. This form is called passive income. You can quit your job in principle.
  7. The next step is living in abundance. You want it, you can buy it. No second thoughts. Your earnings are several orders over your spending.

It is not stated how you do it and depending on your CV that differs alot from others because you might be better in something than others are.  But from a project management perspective it helps to get a certain target to, improve yourself. So, which level are you on? Time to aim for the higher step!