Why financial literacy is an important life skill for youths (2024)

There are many important life skills people learn to master as they grow from young children into independent adults. Laundry, cooking, time management, organization and social skills are just a few examples. Unfortunately, money management is often overlooked.

Unless a school followsCanada’s financial literacy guidelines , teenagers may graduate without understanding the four spheres of financial literacy: earning, spending, saving and investing. Sometimes, even when curriculums address such aspects of financial literacy for children, it’s delivered in a way that is unrelatable for youths.

Noah Booth, a youth himself, set out to change that by writing a book aimed at helping teens learn about the value of money. RBC Wealth Management partnered with Booth to get a teenager’s perspective on this important topic.

What is financial literacy?

Financial literacy is the knowledge needed to make sound financial decisions. Increased financial literacy leads to greater resilience during predictable and unpredictable life events. Learning how to earn, spend, save and invest wisely contributes to overall well-being and stability.

Why is financial literacy important?

As Booth points out in his book,A Rich Future: Essential Financial Concepts for Youth,not everyone successfully manages money. Financial literacy is the key to changing that dynamic.

“There is a knowledge gap among kids in the world,” Booth says. “Some have access to information from parents, schools and other forms of financial literacy, while others do not.”

“If you’re financially literate and smart with your money, you have a huge advantage in life, right from the beginning,” Booth explains.

He explains that learning how to manage money well when you’re young translates into greater stability as an adult. “Financial literacy is super important, as money is a part of everyone’s lives. When you’re older, you’re going to have to pay for your food, housing, transportation. Everybody has to to deal with money. I think it goes along with other key things that are taught, such as physical well-being and mental well-being.”

Which money management basics must teens master?

When it comes to financial literacy, teens need to focus on the four spheres.Earning involves learning how to manage your paycheck, understanding your career options—from being an entrepreneur to pursuing a profession you’re passionate about—and knowing the basics of how economies function.

Spending focuses on managing the money you earn, within a budget that helps you meet today’s expenses while saving for the future—andfor unexpected emergencies. Among other things, it may include buying a car and/or home responsibly,using credit wisely and giving charitably.

Saving and investing blend into one another and include opening savings and checking accounts, understanding the benefits and consequences of student loans, knowing how financial markets function, and understanding basics such as the time value of money and the impact ofcompound intereston wealth that increases over time.

Booth began investing his savings when he was 10 years old. As he sought to learn more about personal finance, he found very few books and resources for teenagers like himself. He explains this was puzzling because he recognized the importance of learning about finances—and that the best time to do so is when you’re young.

How does one learn the value of money?

One great place to begin your financial journey is by reading Booth’s book—and the sooner the better.

The earlier you begin your journey toward financial literacy, the sooner you can make your money work for you, rather than the other way around.

RBC Wealth Management is a business segment of Royal Bank of Canada. Please click the “Legal” link at the bottom of this page for further information on the entities that are member companies of RBC Wealth Management. The content in this publication is provided for general information only and is not intended to provide any advice or endorse/recommend the content contained in the publication.

® / ™ Trademark(s) of Royal Bank of Canada. Used under licence. © Royal Bank of Canada 2024. All rights reserved.

Why financial literacy is an important life skill for youths (2024)

FAQs

Why financial literacy is an important life skill for youths? ›

Financial literacy is universally essential for all students, regardless of their background or future career path. It equips them with the knowledge and skills necessary to navigate the complexities of personal finance, make informed decisions, and achieve financial security.

Why is financial literacy important for youth? ›

Financially literate people are generally less vulnerable to financial fraud. A strong foundation of financial literacy can help support various life goals, such as saving for education or retirement, using debt responsibly, and running a business.

Is financial literacy a core life skill? ›

Financial literacy, the ability to understand and manage your finances effectively, is undoubtedly a fundamental life skill. It encompasses everything from budgeting and saving to investing and retirement planning.

How does financial literacy impact students? ›

Simply put, financial literacy provides students with the tools and knowledge they need to make sound financial decisions. By understanding common budgeting strategies, managing debt properly, and smart borrowing, the student is less likely to become overwhelmed by potential financial concerns while in school.

What is financial literacy and its need and importance? ›

Financial literacy is a set of knowledge and skills that relate to finances, especially personal finances. Having financial literacy can help professionals in their work life and personal life, enabling them to plan and allocate resources for the future and better manage money.

Which is the main goal of becoming financially literate? ›

Achieving financial literacy can help individuals to avoid making poor financial decisions. It can help them become self-sufficient and achieve financial stability. Key steps to attaining financial literacy include learning how to create a budget, track spending, pay off debt, and plan for retirement.

What are the 4 main financial literacy? ›

Financial literacy is having a basic grasp of money matters and its four fundamental pillars: debt, budgeting, saving, and investing. It's understanding how to build wealth throughout one's life by leveraging the power of these pillars.

What are the abilities of financial literacy? ›

Financial literacy refers to the cognitive comprehension of financial concepts and abilities, such as cost allocation, making investments, taking on debt, paying taxes, and managing one's finances. Being financially illiterate means lacking in these abilities.

How does financial literacy lead to a healthier life? ›

The only way to achieve financial health is through financial literacy. Being financial literate means you understand the importance of saving early and often to reach short and long term goals (like retirement). It means you understand the difference between good and bad debt, and can avoid high interest credit cards.

Why is financial literacy important in an essay? ›

Financial literacy helps people in becoming independent and self-sufficient. It empowers you with basic knowledge of investment options, financial markets, capital budgeting, etc. Understanding your money mitigates the danger of facing a fraud-like situation.

Why are financial values important? ›

Whether it's how you spend, give or invest your dollars, aligning your money with your values allows you to make purposeful choices that you can feel good about—while still planning thoughtfully for your future.

Why is financial management important for students? ›

Financial management skills are important for students as they contribute to their economic development and overall financial well-being. Students with strong financial literacy and management abilities are more likely to experience increased wealth, financial security, and effective financial decision-making.

What is the basic financial literacy? ›

Financial literacy involves concepts like budgeting, building and improving credit, saving, borrowing and repaying debt, and investing. Becoming more financially literate might make financial decisions related to loans, major purchases and investments less daunting.

What is a quote about financial literacy? ›

The number one problem in today's generation and economy is the lack of financial literacy.” “We were not taught financial literacy in school. It takes a lot of work and time to change your thinking and to become financially literate.” “Teachers are the single most important influence on student success.

Why financial literacy for high school students? ›

Students can learn the basics of personal finance by incorporating financial literacy into the school curriculum. This knowledge is a foundation for making informed financial decisions and helps them avoid common financial mistakes that can have long-term consequences.

How can financial literacy empower individuals? ›

Reduced Financial Stress: Financial literacy empowers individuals to effectively manage their finances, reducing stress and anxiety associated with money-related issues. By gaining control over their financial lives, individuals experience improved overall well-being and quality of life.

Why is financial literacy important for black youth? ›

Learning financial literacy can help students make confident money-management decisions. Many scholarships and grants for Black and African American learners are available. Financial literacy can help build greater individual and generational wealth over time.

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