“Teach your children the value of things, not the price,” goes a popular saying.
One of the things your children need to understand is the value of money. And the sooner they understand its significance in the world they live in, the more empowered they will be.
From pocket money to monthly budgets
Nothing beats experience, which is why every parent has a lecture on the ‘value of money’ (usually met with wide yawns and rolling eyes). Instead of boring your kids to death, introduce them to the concept of savings through a daily or monthly allowance. This might be met with resistance since the idea of being financially constrained is abhorrent even to kids.
But if you work out the math and negotiate with them while helping them understand your financial situation, you’ll be in for a surprise. Studies show that children entrusted with financial responsibility won’t just learn to manage their money wisely, but also learn to save, plan, budget and, more importantly, have the capacity to make good financial decisions.
From making change at grocery stores to paying bills
Don’t underestimate simple chores as a learning tool to teach kids the fundamentals of finances. Many parents financially compensate their kids’ efforts to complete household chores. Whether it’s to run errands, have them make their beds, or give you reminders about bill payments, financial incentives will slowly but surely teach them about generating income.
You could then encourage your children to use their earnings to pay for purchases they wish to make at stores (in your presence, of course). It not only sharpens their math skills but also helps pave the way for children to understand when to spend or indulge, thereby teaching them the basics of saving and budgeting in a fun and practical manner.
An important concept of saving that can be developed at a young age is delayed gratification. Saving as an adult is most difficult because of our inability to understand the future benefits savings bring. The common tendency is to live in the present and splurge on wants vs. needs. Saving for future requirements is a habit that is hard to inculcate as adults. So kids can hardly be expected to hold on to their allowances beyond a trip to the candy store.
In order to help them hold on to their money, specify when they can spend their allowance and get them to also think about what they are going to spend it on. This way kids not only learn to save but have a savings goal. For e.g. buying a couple of comics at the bookstore will be great to get them through the weekend but if they held on to their money, they could buy something as big as a Playstation at Diwali or Christmas. You could even open a savings account to introduce them to the grown-up alternative to piggy banks.
Man is a creature of habit
By assigning your child several tasks depending on his or her age and competence, you will have a clear understanding of how your children approach their finances. You will also get an insight into their planning and organizational skills in addition to their risk appetites. While children will change their point of view according to their experiences and what they are exposed to as they grow, you will be in a good position to gauge their spending patterns and style. You can then guide them at a nascent stage before it’s too late. However, make sure you are not going overboard as most parents become overprotective and don’t give their children the liberty to learn through mistakes. Remember, losses are a possibility in every investment plan, and learning to deal with financial losses early can show your children how to gauge risk and avoid falling into a debt trap in the future.
Once your kids have learnt these basics, you can then urge them to further hone their skills in myriad ways to help them respond appropriately to different situations in their adult years. Stuff like compound interest, debt and other financial jargon won’t be alien concepts but second nature to kids with a keen sense of personal finance.