11 important financial literacy terms for kids
In today’s reality, it is essential to explain financial terms to children at an early age. The older the child is and the closer to independent life, the deeper you need to understand monetary and economic relations.
Today we will talk in detail about the 11 main terms from the field of finance.
So, what is savings? Savings are the money that you keep, especially in a bank or other financial institution. Savings can also be simply described as the process of setting aside profits for the estimated costs in the future. Savings are a source of cash for emergencies, short-term goals and are also a source for investment. Savings accounts are very simple, so children can easily understand this concept.
The main thing that a parent should pay attention to is the associated fees. Depending on your bank or credit institution, you should be able to open an account that allows you to receive balances without any payments. Otherwise, you can put your children’s money in your savings account and track it yourself.
It is necessary to explain to the child the features of a savings account, the difference between savings and investments.
Debt is something, especially money that owes to someone else. Also, the debt can be called the condition of the debtor.
Most people do not fully understand the process of using a credit card and use it as if they will never need to pay.
According to many scientific studies, it has been proved that debt causes people to have an increased level of stress and anxiety.
Adults must realize that their child needs to know about a debt before they getting their first credit card.
For example, when you go shopping with your child, show them all the ways to pay for goods, including the process of using a credit card.
The child should also be aware of the catastrophic nature of large amounts of debt on loans with large interest.
A credit is an agreement to provide goods, perform services or transfer money in exchange for expected, anticipated payments in the future with interest by a certain date or according to a certain schedule. Also, a credit can be described as the use of someone else’s money for a fee.
Children need to clearly explain the danger of credits, that credits should be taken only in the most extreme situations.
A deposit is a payment, especially to a bank account, which you pay as the first part of the total payment amount for something. Also, a deposit is the amount of money you pay when you rent something and is returned to you when you return the thing you rented
Speaking briefly and clearly for the child, the deposit is the act of crediting money to the account.
A loan is an amount of money that is borrowed, often from a bank, and must be repaid, usually along with an additional amount of money that you must pay as a fee for borrowing.
Inflation can be explained to a child as a general, continuous increase in prices for goods and services; the opposite of less common deflation.
A great way to start a conversation about inflation is to tell your kids how cheap it was and explain why.
Your kids need to understand why things were cheaper when you were younger. They also need to understand that wages are rising along with inflation, so they are not afraid that everything will cost more than they can afford.
A healthy understanding of inflation, not fear, is all that is needed for your children.
What is usually called a budget? A budget is commonly referred to as a plan that clearly demonstrates how much money a person or organization will earn and how much they will need, or how much they will be able to spend.
Otherwise, the budget is described as a cost plan or a report on the projected, actual profit, as well as expenses for a certain period of time.
Of course, your child does not need a budget yet, but understanding this term is really important for children from an early age. The concept of having a certain amount of money and knowing where it all goes is great for kids.
For children under seven, it is best to plan individual amounts of money at a time. Show them that you only have a certain amount to spend them, and explain the various things you are going to buy.
Among other things, I strongly recommend that you should use comparative purchases to teach your children about budgeting at an early age.
8. Brokerage account
So, let’s start with the definition. A brokerage account is an account for storing cash, liquid money intended for investing in stocks, bonds, mutual funds, and other investments.
Your child will hear about the stock market at an early age. Parents often explain that some companies have shares that you can buy, and these shares can bring you money. Parents rarely explain how shares are purchased.
Many adults don’t even know how stocks are bought. Simply explaining how you open a brokerage account and then use that money to purchase investments will be quite enough.
Typically, this word denotes the total number of products or the number of a particular type of goods available in the store. However, here we are talking about the meaning of this term directly in the financial sphere.
So, a stock is an investment that represents ownership interests in a corporation’s assets and income.
10. Compound interest
Perhaps it is safe to say that this term is the most important of the haunted financial terms in this article. Compound interest is an interest calculated both on the amount of money invested or borrowed and the interest that has been added to it.
Children need to understand the essence and realization of compound percentages as quickly as possible. Parents need to explain to the child how investing works from an early age because this unique process can turn a little bit into a whole batch. $100 invested at 10% per annum means that next year you will have $110. This means that $110 at 10% will turn into $121 for the second year, and so on.
However, if you use a credit card that charges 24% per annum, it will eventually make your minimum payment useless. That’s the basic feature of compound interest. If your children start investing at a young age, their money can do a lot more work for them than they can do for themselves.
What does this term mean? This is the presence of backup plans and other options. This is exactly what you can start explaining from an early age. Teach your kids to be ready for everything, no matter how good the deal seems. You can begin this lesson with small toys until they are old enough to learn about diversity in investing.
True diversity in investing means investing in stocks, bonds, cash, real estate, commodities, and endless other options. There is also diversity in diversity.
The key lesson here is to make sure that your child understands how important it is not to put all the eggs in one basket.
These 11 terms are just some of the many financial terms your kids will need to know to be ready for adulthood.
Teach these terms as soon as possible and as soon as your children understand them.
Thus, in our time, teaching a child the basics of financial literacy is like teaching self-survival skills. The more familiar a child is with monetary and economic relations, the more successful his life can be.
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