Financial decisions made by an adult are often a reflection of the early lessons s/he learnt as a child. As children mimic their parents in social as well as financial behaviour, it is imperative that you inculcate good financial habits in your children early on.
If you don’t teach your child how to manage money, “life” as we know it, will. Your child may learn the importance of financial discipline the hard way, so it is important that you make financial lessons a priority.
You don’t need to throw addition, subtraction, multiplication, income, expenses at your child at every possible moment as their young minds might not be able to comprehend it at a very early age.
Below we have listed down several concepts which can be taught to your child at various stages. It is advised that you go slow with them and try to make learning fun with demonstrations and practical knowledge, rather than just giving them textbooks to learn from.
AGE GROUP: 3-5 YEARS
The concept of money should be taught at this age. When your child outgrows the putting-everything-in-mouth phase, introduce him/her to actual coins and notes. This way, you will ensure your child gets familiarised with currency and its workings way before s/he actually needs to use it.
When you go to departmental stores and purchase items of regular use, make your child pay cash to the cashier. Slowly, s/he will understand the concept of money, how it is exchanged for the goods bought or services availed.
This phase is also the best time to introduce your child with the concept of savings, expenses and charity via a piggy bank. You can use the first piggy bank for savings, the second for spending and the third for charity. Using a piggy bank, your child will learn how to save, how to use the saved money wisely and will inculcate the habit of donating it to needy people.
Use a clear jar instead of piggy bank, so your child can understand how money grows when they save and how it reduces when you spend excessively. This way, your child can make a better decision when s/he receives money from you or relatives on birthdays and festivals, etc. At age 5, you can make your child understand various money denominations and their value.
AGE GROUP: 6-10 YEARS
The next time your child asks you for fancy toys, tell him/her the actual value of the toy and help remove a few coins or notes out of the expenses or savings jar. Then, take your child to the toy store and let him/her pay for it. Your child will understand that the toy cost him/her some money from savings or expenses jar and is likely to value it more.
If your child asks you for fancy video games, you should tell him/her that you won’t be able to buy new clothes or shoes as promised earlier, if s/he buys this video game now. This way, your child will learn the consequence of overspending, understand its possible outcomes and weigh decisions accordingly.
Even if you are giving your children pocket money, make them earn for it. Set a weekly allowance for simple tasks like cleaning their room, completing homework on time, etc. This way, your child will learn that money has to be earned and one can’t get it without putting any effort.
Once your child’s savings jar is full, sit with him/her and count each coin and note. Then, exchange low-value coins and notes with high-valued rupee notes so they will learn to count it as well. Take your kid to your bank and help him/ her deposit the money by opening an account. This way, your child will get familiar with banking concepts.
Furthermore, it is important to instill the feeling of compassion in your children. So, make your children donate to needy people or charitable institutions from their charity jar. It will teach them that money can be used to help people and bring others happiness rather than just buying things.
AGE GROUP: 11-14 YEARS
At this age, introduce your child with basic banking functionalities like how to write a cheque, deposit cheque in bank, withdraw cash from bank or ATM, etc. This is also a good age to introduce the concept of compound interest and show them how money can grow with interest over time.
AGE GROUP: 14 AND ABOVE
This will be ideal time for parents to introduce various financial asset classes and instruments like fixed deposits, stocks, gold, real estate, credit cards, etc. It will not be a bad idea to ask your children to try few internships during college vacations, so they can start building a corpus on their own for their higher studies.
Following these steps will go a long way in helping your children take financially sound decisions.
