The term “financial education” is in vogue today, and for good reasons. The internet has changed the world profoundly. Most teens today have access to the internet where they can buy video games, apps, clothes, toys, etc. like they couldn’t before.
Buying games online on many apps and game stores can be tempting for kids. Most games have in-game purchases to get kids to spend more money. They also use algorithms and reward systems designed to get kids to spend as much time as possible on the apps, further compounding the problem.
Teens also prefer to shop online which can lead to unhealthy shopping habits such as impulsive buying or junk buying. Research shows that the pre-frontal cortex – the part of the brain responsible for decision-making and impulse control – is not fully developed until a person is in their mid-20s.
Add to this the fact that shopping causes a dopamine rush—the chemical responsible for feeling happy, and it is easy to see why so many young people fall into the trap of unhealthy shopping habits and patterns. And unless these are addressed and corrected, they will continue even when they grow up.
And keep in mind that most teens do not receive any training or education on personal finance and money management, but are expected to become fully responsible for their finances. And the thing is, just because someone becomes an adult or starts earning, doesn’t mean they have somehow acquired the ability to make informed financial decisions telepathically or through osmosis. They needed to have learned it. It is especially important today when they are inundated with a smorgasbord of financial products, especially credit.
Credit can be a handy tool if leveraged well. For example, if a young person is interested in graphic design and wants to buy a laptop but does not have the whole amount, they can use credit to break it down into small recurring payments.
It is tempting for a lot of youngsters to start using credit cards and other forms of credit as soon as they are eligible for them, and due to a lack of financial education, tend to spend more than their means, falling into bad credit habits such as only making minimum payments, having multiple cards, paying by credit card instead of debit card, using one card to pay off another card bill, among others.
Youngsters fall into the “credit trap,” as we call it, buying impulsively and then being unable to repay the full amount, which directly impacts their CIBIL as well. These are things that they do not know of and release until it falls on their shoulders. The reason? Lack of financial education.
Let us try to understand the same with an example. Imagine you are a student who has just graduated from college with a degree in computer science. You have taken up your first job at a software company and have to move to a new city for it. Until you were in college, your parents had taken care of you financially as they wanted you to be fully focused on your studies. You’ve never had a job and don’t have much experience with banks, insurance, investment, etc. You know next to nothing about managing your own money. But now, you are required to become autonomous and manage your finances independently. You are expected to do something that you’ve never been taught or have any experience with but will have a huge impact on your family’s life!
Sounds ridiculous, right? But, unfortunately, that is precisely what millions of young people go through when they first start earning. This is where financial education comes in, especially at a young age when children are impressionable and their minds can be moulded.
Financial education empowers them with basic knowledge of essential financial concepts such as savings, budgeting, investment options, financial markets etc. as well as mitigating fraud and is essential to lead a happy, prosperous life. The earlier we impart information to children about finances, the smarter they become with their finances.