Teach Kids about Money

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One of the greatest gifts you can give your kids is to be responsible empowered adults around money. Most parents talk to their kids about savings at an early age, imparting them the wisdom of savings and its importance. Even then, most parents tend to think it’s best for the children to receive their financial education once they are of an appropriate age.

Indian parents tend to leave their children a lot of money as inheritance which, contrary to their thinking, will only harm the children without any financial education. Children are known to be most receptive when they are between 5-12 years of age. So it would be advisable to start their financial education in these years itself, when it still is education and not a task they need to accomplish. As they grow, they can learn more complex concepts. This way the children will be prepared to take big money decisions as adults.

Common mistakes parents make

Parents often keep children away from money matters and hide any financial problem they may be facing from children. While they do this in the belief that they are protecting their children, it may not have the desired behaviour.

How to teach children financial matters

Financial education should start at an early age and can be easily made part of daily life. You can start teaching in small ways by gifting a piggy bank to a young child. Encourage your kids to save from their pocket money. Explain to them the difference between want and need. The best way to educate your kids about banking and banking tools is by opening an account in their name. Take them with you to the bank to teach them how to deposit money. Familiarise them to banking tools at an early age like cheque book, passbook, ATM card, and account statements.

5 Money lessons Children must learn

1. Earning Money is difficult

  1. Teach children the value of hard work, dignity of labour, and the importance of saving with one simple exercise – link their pocket money to household chores.
  2. Define the amount that will be given to them for each activity they do. These chores can include cleaning their room, filling water bottles, polishing their shoes, etc.
  3. A small remuneration can be linked to simple activities and this amount can be increased as the chores become more difficult.
  4. Part of the money that they earn can be given to them as cash and part can be deposited in their saving accounts or topped-up on their pre-paid cards.

2. Start Early

  • Just as a headstart in a race improves your chances of winning, starting the process of investing early on improves your chances of accumulating wealth.
  • This is because the magic of compounding kicks in to make your money work for you.
  • Encourage your kid to start an SIP with you every month from her/his pocket money.
  • Credit a certain percentage of interest every month on their savings to help them experience the magic of compounding.

3. Live within your Means

  • Allow children to indulge in discretionary spends only from their pocket money. Define spends, such as a meal or a new football, which they must buy from their pocket money.
  • If in a particular month they fall short of the amount they need to buy what they want, ask them to wait until the next month for the same.
  • If they are persistent, you can introduce the concept of borrowing and lending by giving them pocket money in advance and deducting this amount from their next month’s allowance. You could even charge an interest.

4. Set Clear Goals

  1. Ask your children to define a big goal towards which they want to save. Be it a new bicycle helps them plan how they are going to achieve these goals.
  2. Let them set a time frame and calculate the amount that they will need to fulfill their goals.
  3. Certain incentives such as a bonus can be offered on completion of milestones, such as on accumulation of every Rs 1,000. This will keep them motivated and on track to achieve their goals.

5. Patience is a Virtue

  1. Investors are often advised to be patient and have a long-term horizon for making the most of their investments.
  2. Being patient if they wish to excel in any sphere is a lesson we must teach our kids.
  3. A simple way to develop this habit is by spreading out their demand for toys, new clothes or a picnic over a period of time, instead of offering them instant gratification.
  4. When they throw a fit, explain to them that they have to wait for good things to happen. And if they are patient, they will enjoy the fruits even more.

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