Schools administer all types of tests that measure students’ intelligence and capabilities to do different tasks, such as controlling air traffic or flying a fighter jet. It’s amazing, however, that there are hardly any tests that focus on a child’s ability to handle the seemingly simple subject called money.
Financial intelligence is, in fact, one of the most important kinds of intelligence that must be cultivated in kids. Unfortunately, it is rarely, if at all, given attention. Many have grown to be unhappy adults enslaved by debts, and desperately living off of paychecks. Indeed, it seems that the world has become a prisoner of debt and financial incompetence.
It is time to correct this situation and start raising kids who are financially intelligent. Of course, we, adults, have to master the subject ourselves because after all, these kids can only learn from us.
What Is Financial Intelligence?
Financial intelligence is intelligence that allows you to perform financial transactions to your maximum benefit. It mainly involves balancing two pairs of financial realities – income and expenses, and assets and liabilities. Assets are anything that drive money into your pocket, and liabilities are those that drive money out.
Another crucial element of financial intelligence deals with cash flow. To really appreciate its importance, it’s good to start with an understanding of its three types: cash flow that involves income going straight into basic expenses such as food, clothing, shelter and the like; cash flow where income is spent on basic expenses, plus on liabilities such as cars, gadgets, vacations, etc. ; and finally, cash flow where income is generated from a business instead of a job, and spent on acquiring assets that produce even more income, such as bonds, stocks and the rest.
It’s sad that people today can solve complicated calculus problems but can’t even make sense of a financial statement. Yes, this is true, and statistics have proven what great number there is of people who are unable to clear themselves of debt. The fact that illiteracy in this subject is so rampant today appears to be the main reason that many are crippled by financial bondage. Apparently, as we continue not to pay attention to the importance of money management, we are leading ourselves to the very gates of financial hell. If we want to live a life where we are not crippled by debts, there is no other way but to start from scratch if we have to, en route to true financial independence.
The Importance of Financial Literacy
So indeed, why is financial intelligence so important? Obviously, the whole world has sunk into the abyss of its own debt. But that’s not even the end of it. Financial intelligence is important if you want to live a life where you never have to find yourself constantly at the mercy of your creditors, a life that you can enjoy because that’s how it’s supposed to be lived.
Improving your financial intelligence means getting a good grasp of how money really works – how to spend wisely, plan your finances, invest, build your wealth and so on. It may sound very complicated, and acquiring financial intelligence is probably a complicated subject, but you’re not supposed to learn it overnight. It is a process.
In fact, it is a process that you will learn from day to day. What’s important right now is that you make that decision to make that change, a change that can make a whole lot of difference in many aspects of your life, and probably of your loved ones.
How to Increase Your Financial IQ
As an adult, you can only wish that you’d learned about financial intelligence back in school. But, of course, it’s never too late. You can start by reading books and other educational materials such as magazines and blogs related to the subject. Seminars are also a great way to meet people who have the same goals as you have. Indeed, this is a great way to motivate you and even make new friends and learn from each other.
Perhaps you can even find a mentor. After all, there is nothing quite like learning it from a person who is a living testament of what financial intelligence can do. A mentor can be a relative or friend who is willing to guide you with each step you make, ensuring that you do not repeat the same errors he had before. In any case, when you find yourself one, make sure you give justice to all the effort and time he spends with you.
Training the Children
As you learn this whole thing about spending right and living a debt-free life, you’d like your children to do the same. This may not be too easy at first for both you and them, but eventually, everything will become routine.
For instance, look for ways that you can discuss money transactions with the kids. When you visit the bank, take them with you and explain why banks are important. Talk about their functions and the reasons you chose that particular bank. Get the children involved in budgeting. Let them suggest what meals to have next week, and introduce to them the concept of costing. Let them help you manage routine expenses with little tasks, like highlighting, with the use of a pen marker, important details on your bills such as due date, amount due and account number. This exercise will help them develop a sense of awareness of routine financial obligations, and why they need to be settled on time.
Financial education is one of the most essential subjects that all of us, adults and kids, must learn. Yet it seems like educators are still not convinced. There are many finance-related courses in college, but the very fundamentals of money and how it figures in real life have ironically been left out.
Getting money smart has only even gotten more necessary today, with the world economy going down on most fronts. Then again, we have to remember that getting financially educated is not solely the job of schools. As adults, we also have the obligation to educate ourselves and our young ones.