TomorrowMakers

Teaching children about money is an important part of parenting. However, what is the right age to begin, and what are the steps to teaching your child everything they need to know about money?

When should your child start managing their own money?

It is in our nature to be protective of our children. No parent wants a child to come to harm through mistakes made from lack of knowledge. This is why parents do not always allow their children full control of their lives until they decide they are ready. One of those concerns is money. When is the right time to teach your children about managing money, and when can you let go of the purse strings? Read on to find out how you can set them up for life.

Start teaching children about money early

Small children will not understand the concept of money immediately, but it is important to keep trying to explain to them with examples in real life how money works. Showing them the exchange of cash and receipts while purchasing something can be of help. Try and start before the child is seven years old, that’s when they would have started forming their attitude towards money.

Demonstrate to them the rewards of patience

Offer a chocolate to your toddler, but also inform them that if they wait for another ten minutes, they will receive two chocolates instead of just one. This will inculcate the habit of saving up and being patient with money for a greater reward sometime later, rather than seek instant gratification with smaller results.

Related: 5 Money lessons to teach your teenagers

Do not bail them out if they splurge their allowance

Offer an allowance to your child once they are old enough to understand how money is used, but do not bail them out if the allowance is spent too quickly. This will teach them the value of planning their spends. Remember that the allowance is a straight gift that has no ties to anything else, or else your child will associate doing work that they should be doing anyway, like doing the dishes or the laundry, with ‘payment’ in the form of their allowance.

Explain to them the difference between needs and wants

This is an important distinction to make, because as your child grows up and earns their own salary, budgeting will be necessary. Just like the previous two points, an adult must have the ability to distinguish between what is required for survival, and what is an optional extra – and how one can save up for it. To start off, maybe you can introduce them to the concept of bills, such as the electricity bill, maintenance bills, and groceries, and let them know that these are unavoidable expenses that cannot be made optional at any time, unlike ordering food from their favourite restaurant, or going to watch a movie in a theatre.

Related: 5 Financial habits your children can learn from you during the pandemic

Show them the different methods of saving and investing

You can teach your child about piggy banks early on, but as an adult there are myriad ways of putting money away and making it grow. As they grow into adolescents and then adults, introduce to them the various ways and means by which they can save money, or invest it to make it grow – mutual funds, gold, fixed deposits, post office savings, etc. Don’t forget to teach them the pros and cons of each as well.

Related: Managing a child’s financial expenses: A mother’s perspective

Equip them to set financial goals for themselves

Setting financial goals is something that you need to teach your child early; if you give them an allowance of a few hundred rupees, encourage them to try and save a portion of it every month. You can sweeten the deal with an added infusion of cash into the savings if they meet a savings target. However, remember to not go overboard with the incentives; watching their savings grow should be the target, not anything extra.

Educate them about credit

Globally, countries are moving towards credit-driven economies – if they haven’t already adopted it. It is therefore vital that your adolescent learns about credit ratings and how to maintain or increase their credit score with good borrowing and repaying habits. Or else they might find it tough to make big-ticket purchases like a home or a new car.

There is no fixed age at which children will respond to different financial concepts, but as a parent you need to start as early as possible. If they do not grasp a concept, try again after a while – it could take anything from a few weeks to a few months, so be patient! Over the years, you can help your child develop into a well-rounded adult who is perfectly capable of managing their finances completely independently. A mother’s guide to raising financially responsible children.