Tips to teach children about money
Created by Shriya Bhatia Updated on Dec 08, 2015
Have you ever wondered how much money you’d have today, if your piggy bank grew over the years, just as you did? Many parents wish they had learned about the principles of money management and its value in our world while they were in school. Perhaps this way they could’ve avoided the financial mistakes they made and the stress that came with it. Today’s world of consumerism and competition, the younger generation are triggered by instant gratification and have adopted a casual approach towards money. Like our own ignorance, children today have no idea how money is generated and regulated; the most common misconception being: “Money grows on trees”. And though western and eastern notions of money management could differ, financial independence is of utmost importance universally. Teaching children how to utilize and save money is one of the best things today’s parents can do to prepare them for financial independence in the real world. Though you can’t go back in time and change your financial education, you can surely inculcate the importance of money management in your children through interesting ways. Helping children understand how money is earned, saved, multiplied, budgeted, invested, and spent forms the basis of their financial education. Therefore, we ought to take on the responsibility of creating a value system that involves and empowers our growing sons and daughters. Hopefully, this way they make fewer mistakes and achieve financial freedom sooner. Remember, a seed planted will bear a fruit in time. Hence, parents have to set a good example for kids to follow Here are some ways for children to adopt better money sense: Bank of mom and dad/ Our Piggy Bank: Explain to your children that you will be setting up an account in their name at the ‘bank of mom and dad’, which could simply be “Our Piggy bank”. Tell them what amount you will put into their account each week, and keep them up-to-date on their savings balance. When they ask you to purchase something, show them this balance in ‘bank of mom and dad/Our Piggy Bank’ and help them understand that you can only afford “x” amount of money. This would help them understand how they have to save-up to buy what they want. Alternatively, parents could show their children what it means to earn money by putting small amounts in the piggy bank for the little things they can do around the house and in their community. Engaging your children to set up mini businesses based on their interests, talents, and skills is another wholesome way to begin their earning-saving-spending basics. Introduce children to budgeting: Budgeting can help children distinguish and strike a balance between needs and wants, as money get allotted to each head of expense. Children learn a lot by listening and observing, hence, while making a household budget, involve your little ones. This exercise can encourage kids to make their own simple budgets for their desires in life while you as parent can, of course, fine tune it; if necessary, with astute counselling. Parents whose children are in their teens can ask them to chip-in a small portion of their pocket money/income (maybe 10%) towards the household. Such a contribution is a good way for teens to learn money management before they leave home for higher studies or to build their career. Bite only as much you can chew: In money management parlance, highlight the importance of living within one’s means at an early stage of life. As a parent it is your duty to help them distinguish between Needs and Wants. Needs are basic necessities one cannot wish away, while Wants make life more comfortable, but can wait. When you are out shopping and if your children are adamant about buying things they want, speak with them politely and firmly while educating them by saying… “that is something that we do not need at this time” or “this does not fit into our budget right now. ” Help children understand the importance of spending money prudently. Imparting decision-making know-how in this manner can ensure the financial wellbeing of your children long term and helps them avoid getting caught up in debt by spending more than they make. Rule of 1/3: This rule is simple and easy to follow and it inculcates the habit of saving. Going by the rule, one should save 1/3rd, spend 1/3rd, and donate 1/3rd of what one earns. This helps lay the foundation for basics of personal finance through savings, budgeting, and help manage hard earned money better. Also, donating money to a worthy cause can develop philanthropic qualities in them. Power of Compounding This is the simplest banking term you could introduce at an early stage in an interesting way. Perhaps use a transparent jar –call it the “Compound Interest Jar” – or “Transparent Piggy Bank” to explain how money can grow, if one saves regularly. Try to make it fun and turn it into a game with incentives and rewards. As long as there are incentives, teenagers and even adults will participate, but the real incentive is the long-term payoff of compounded growth. Say you have a transparent jar. Give your child a rupee to start with and explain to him/her that you will contribute 50% of the amount standing in the jar by the end of the day every day – this means, incentivise the child’s saving behaviour. If you practice this for 10 days, the “Compound Interest Jar” would look something like the table below, even after accounting for a few withdrawals in the interim:
| Dec 09, 2015
Brilliant is the word!Thanks for sharing such elaborate view point. I am sure it will be of great help to proparents.