Like other lessons in life, finance lessons for children should start early. Here are 10 tips that parents can use to ensure their children grow up with a solid financial foundation.
Lessons that children learn early in their lives tend to stay with them forever. It’s crucial, therefore, that they pick up the right financial habits. Even if you’re a financial wreck, you can still ensure that your child grows up to be financially savvy.
Here are 10 tips that you can use to ensure that your children will grow up with a solid financial foundation.
Model good behaviour
Children pick up most of their habits from their parents. Your kids will never take you seriously if you’re careless with your finances but preach to them about money management. Showcasing positive financial behaviour will help them see the logic in your actions. They will follow similar behaviour later on in their lives.
Additional reading: 5 Money Management Tips For Married Couples
Start discussing money early
Kids start grasping money concepts as early as three. Engaging them in simple money conversations during trips to the grocery store, counting the change tendered, and explaining concepts like sales or discounts are ways to make them start thinking about money.
Sending them on errands to the grocery store with a fixed amount will teach them how to handle money carefully without exceeding budgets.
Teach age-appropriate lessons
At age 5, kids can handle more complex money matters like saving and budgeting. Encouraging them to save up their pocket money to buy the bicycle or the dollhouse they’ve been coveting for some time will teach them the value of money and the importance of delayed gratification.
Parents can introduce incentives for every milestone that the child achieves with his/her finances, whether it has to do with saving a certain amount every month, earning new financial habits etc.
This way the child will start practising good financial habits and routinely follow this kind of behaviour.
Encourage them to invest
Kids in India receive cash gifts from their parents or relatives during most festivals or birthdays. Usually, when the amount reaches a big sum, parents put all this money in a Fixed Deposit.
The child can participate in this exercise too. He/she can keep a tab on the accumulating money and alert his/her parents when it reaches a certain figure. A non-monetary incentive can be tied to it as well. For example, the sooner the child hits the desired target, the bigger the incentive will be. This way he/she will be encouraged not to spend the accumulating money.
Additional reading: The Importance Of Making Investments That Suit Your Life Goals
Don’t tie chores with rewards or money
When you tie monetary rewards with your kids’ chores like making their bed or tidying up their room, you’re making yourself vulnerable to negotiations for every request you make. These are chores that your kids should be doing anyway and when you tie it to a reward, it could end up backfiring for you.
Explain the difference between needs and wants
Parents have a tendency to often get emotional and give in to the demands of their children during shopping trips. The child ends up thinking that his/her parents can easily afford the things that he/she wants to buy.
When the child makes a demand for a toy car at the store, talk to him/her about what that Rs. 500 can buy instead of the toy car, such as grocery items of the house, tickets to the museum for the whole family etc. This way the kid will be able to judge the value of money and appreciate the difference between expenses that are made on necessary items and nice-to-haves.
Additional reading: The Dos and Don’ts Of Budgeting
Encourage kids to earn their own money
Children these days have several opportunities to earn money on their own. They could take up jobs like babysitting for their neighbours, delivering newspapers or helping with housework. Encourage your child to take up jobs or responsibilities that interest them and also pay. This way the kids are not entitled to think that they can get what they want.
Teach your children to give/donate
The joy of giving is an important lesson that your child should learn early on. Ask your child to draw up a list of issues that he/she deeply cares about and the amount of money that he/she will be able to contribute monthly towards this cause. Make a ritual out of donating to charity on special occasions like birthdays. This way they learn the importance of saving and the joy of giving.
Lessons on Credit Score and Credit Card/Debit Card
Before they head off to college, start talking to your kids about the importance of a good Credit Score and how unpaid debt in any form can ruin one’s financial health forever. Send them off with a Debit Card so that they can spend only within a fixed amount and thereby realise the importance of budgeting.
Talk about money matters frequently
Money may be a boring topic for children but discussing it frequently will help. Working money into casual conversations demystifies money for children. This way they will be able to grasp important financial concepts and how they work in reality.
Parents play a crucial role in imbibing the basic tenets of responsible financial behaviour in their children. With these simple tips in use, parents can prepare the ground for a solid financial foundation for their children.