Teaching your children money management is one of the most important things you can do as a parent. Here’s how to go about it.
As parents, we would all want to provide the very best to our kids – whether it’s clothes, food, education, or overall lifestyle. While we may succeed in doing that in our own way, many overlook critical life skills such as teaching the value of money and how to manage finances effectively. By starting early, you can create a healthy and responsible attitude towards money that can shape their entire lives.
Saving, investing, and spending wisely are lessons that will hold them in good stead. Here are five simple money mantras that you can impart to your teenagers and prepare them for the real world.
1. Give them a monthly or weekly allowance
The first step towards responsible money management starts with teaching your children the value of money. This has to start as early as possible. Instead of giving in to their every demand, encourage them to save from a weekly/monthly allowance. Better still, ask them to earn their allowance by doing household chores. This could involve simple things such as doing the dishes, cleaning their room, or taking out the trash. They will learn the importance of hard work and think twice before wasting their money.
2. Show them how to budget for expenses
As teenagers, your children would have a list of things they would want to spend on, from cafe hangouts to fashionable clothes to branded shoes to the latest gadgets. Explain to them how budgeting works. Help them create a spreadsheet where they can input weekly or monthly spends on things that are important to them, and cut down on unnecessary expenses. This will help them monitor their spending habits and course-correct whenever needed.
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3. Teach them to save before they spend
Saving is a life skill that will benefit all of us. Talk to your kids about the importance of putting a chunk of money aside at the beginning of the month and spending the rest, rather than spending randomly and saving whatever is left, if at all, at the end of the month. Help them create short-term goals (say, cool trainers) and long-term goals (first car), and encourage them to work towards these. Incentivise them by promising to add to their savings if they reach a certain goal.
4. Lead by example when it comes to building credit
Building a healthy credit score is crucial for every adult. If your children learn this in their teenage years, that’s even better. Explain what having a healthy credit means and how it can help them later in life, such as to avail of a loan to buy a car or house, or start a business. Talk to them about simple ways to build credit, such as paying credit cards bills in full by the due date. Lead by example by involving them in your own credit process and showing them the results.
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5. Impart knowledge of effective tax planning
Explain to your teenagers how proper tax planning can pay off over time. Tell them about the advantages of timely tax planning in reducing tax liability, and of saving and leveraging the power of compounding to meet various life goals such as higher education, buying a house, children’s education, and even building a retirement corpus.
These five lessons will go a long way in making your teenagers financially responsible adults. And, while you are at it, explain the benefits of health insurance (which is especially critical in these pandemic times) as well as the advantages of having life insurance. This will allow them to build a secure future for themselves and their loved ones. Look at these pros and cons of giving children an allowance that every mother should know.