Why financial literacy is an important life skill for youths

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 follows Canada’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—and for 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 of compound interest on 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.