- Date : 04/10/2018
- Read: 3 mins
As a parent, you wear many hats – including those of friend, teacher, and guide. There are some things that cannot be taught in the classroom, and handling real-world finances is one of them.
Money management is a very important lesson to teach your child. It is as important as their formal education, if not more so. You cannot simply let children learn about money on their own. It is your responsibility as a parent to teach them about savings, spending appropriately, living within their means, and giving back to society.
It is never too early to begin. Children should be introduced to financial matters from an early age, especially as the world rapidly moves towards a cashless economy.
Here are some ways to get started:
1. Give them an allowance
Give your child an allowance, but do not start directly with a bank account. Give them coins and paper money in the beginning. Let them experience the thrill of getting money every week. You can show them how savings increase if you put aside some part of the allowance. They will also learn how to live within their means as they will be required to make the money last till the next allowance comes in.
2. Teach them to save
Understanding how things work in the real world can be overwhelming. To teach children how to save money, get a piggy bank and encourage them to put a part of their allowance in it. At the end of the month, open the piggy bank and count the money within. Show them how small amounts can add up. Divide the money into three parts – one for them to spend on something they want as a reward for saving, one part to donate to the less fortunate (teaching compassion is important), and the third part to go into a bank account for their future.
3. Talk about money
Children are very good observers. Teach them by example. Take them grocery shopping once they are old enough. Teach them how to compare and buy. Show them how you pay with your debit or credit card. More importantly, show them how you have to repay your credit card debt on a timely basis. Involve them in money talks. Keep your kids informed about what are you buying and for how much. Better still, take their opinion in big money decisions such as a buying a car or an appliance.
4. Don’t indulge them immediately
Demands from children are common. It can be for a toy, a set of crayons, or a bicycle. Such demands often arise after they see something their friends have, or from TV/online ads. Do not give in to every demand even if you can afford it; that’s the worst thing you can do. Once kids know they can get away with it, they lose respect for hard-earned money. You can give them what they demand for birthdays and other special occasions. However, at other times, delay their gratification. Make them do chores to earn a small share of the value of the product and promise to fill the gap if they sincerely work for it.
5. Long-term goals
Get children to save money from their allowance, do chores around the house, and put the money they get as gifts from relatives into a savings account if they want to make a big purchase. Teach them the power of compounding. Ask them to save at least 60% for the bicycle or iPad they have been eyeing, and reward them with the other 40%. Not only will you be imparting valuable life lessons; your child will also have a great sense of achievement once they meet their goal.
As children grow older, you should also teach them about investing in mutual funds, physical gold, gold ETFs, government schemes, and more. Be sure to guide them in their journey towards financial independence!