Along with all the other crucial lessons of life, teaching your child the importance of money and how to use it well is quite necessary. Childhood is the time when they’re bubbling with energy and enthusiasm to learn new things. The lessons you teach them at a young age can stay with them forever.
Now, you obviously can’t bombard children with too much information, but you need to at least give them a basic idea of how money works and some important terms related to it. Most of the time, children end up learning from the money habits of their parents. They watch you and learn from you. So, be careful not to pass on any bad habits to your children.
Here are ten basic money terms you need to teach your kids:
This is probably the most important term you should teach your kids. They might not need to know how bank accounts work or about Saving Schemes at this age; all they need to know is how to save the cash they usually get from relatives or in the form of pocket money and put it to use later. These small lessons can go a long way!
Additional Reading: How To Get Started On Your Savings
One basic thing your child needs to know is—the difference between savings and investments. Many people are often confused and use these words interchangeably. Teach them how they can put their extra pocket money in places where it can grow with time. Alternatively, you could also make investments for them and show them how things work, in a fun format, of course.
Additional Reading: Don’t Just Save, Invest
- Credit Card
This is something they could potentially swipe left, right and centre as soon as they start earning. We ourselves may have made a number of meaningless purchases using our Credit Cards and repented later. You need to ensure that your child does not end up making the same mistake. You need to make them understand the difference between credit and debit and when to use which.
Once you teach them the basics of using a Credit Card, you need to move to the next concept – debt. Make your children understand that borrowing money from anyone is all right only if you pay the loan back on time. Letting the debt pile up endlessly is not a great way to handle your finances. Borrowing often doesn’t just affect your budgeting skills, it could also spoil your relationship with family and friends (if you borrowed money from them and you haven’t paid it back in a timely manner). Nobody likes to lend money, especially if they aren’t getting paid back on time. Learning how to manage debt will be useful for the future when your child actually needs to take a loan from a financial institution.
One of the most important lessons about money is budgeting. This means you’ve got to plan it well. You need to teach your children the importance of making a budget and following it meticulously. This includes making a list of their priorities and other basic expenses and sticking to it. Once they start giving priority to school supplies over the latest video game, you know you’re on the right track.
Additional Reading: How Budgeting Can Transform Your Financial Life
Although it’s not directly a money-related term, you need to teach your child the importance of being patient. Once they learn the art of being patient, it’ll stop them from making impulsive purchases. This is what most of us waste money on every time we receive our pay check and often regret these purchases later. To ensure that your child doesn’t develop the same bad habit, it’s better to teach them about it in advance. The same applies to investments. Holding on to investments during volatile phases can help earn good returns in the long run.
- Pocket money
Before giving your child their pocket money for the month, ask them to tell you about how they plan to spend the cash. It’ll not only help them learn the magic of budgeting, but you’ll also get to keep an eye on where the money is going. You also need to limit this money so that they never take money for granted and learn to utilise it well.
Money lessons aren’t just about making the most of your bucks, you also need to teach your kids the importance of being generous. Take them to charity functions and show them how generosity can help bring smiles on the faces of the less-fortunate. It’s not just about writing big cheques for charity foundations, even when it comes to donating clothes, books etc., let them experience it. There’s nothing better than raising a kind and generous individual! As adults, they’ll find that donating money to charity gives them tax breaks too.
Additional Reading: Tax Deductions for Donations
It’s necessary to teach your children everything about a Debit Card and how to use it. A number of banks offer children Debit Cards, which are a good option to let your child explore everything about handling cash. Something to consider once you’re kids are old enough.
- Piggy bank/Savings Account
If your kid is too young, you could start giving them tips about utilising their piggy bank. But if they’re old enough to understand the basic functioning of a bank, you need to tell them about Savings Accounts and how they help save better. With time, they’ll learn about other, better, saving options like Fixed Deposits, but till then, they should know these basics at least.
It’s time you start raising your kids to become financially independent and smart! Teaching them all about these terms will surely help you take a step towards that.