Teaching your kids how to save from an early age can set a solid foundation for a lifetime of financial responsibility. This is your guide for sharing good money habits with your little one.
Given how important financial literacy is to navigate through life, it’s surprising that schools don’t teach kids about money management. This is why it has become imperative for parents to take charge and teach kids about important money lessons.
You may believe that your child is too young to learn how to handle money. But not teaching them at least the basics of finance will do more harm than good.
We always come up with excuses to avoid teaching our kids the financial facts -whether it’s the ins and outs of budgeting, how to cope with Credit Card debt, or something as simple as opening a Savings Account. In general, we tend to go hush when it comes to money.
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But, what we often tend to ignore is that it should not be left to be learnt by trial and error later on in life. So, here are few important money lessons that you can teach your kids to help them take charge of their financial future.
- The Importance Of Saving
Instil in them a habit of saving money from a young age. But saving without a goal may not motivate your child.
Let your child identify something that he or she wants and save towards it. It is when your child has saved for months, say to buy a toy or a gadget, for example, only then will he or she understand the importance of money.
When it comes to learning concepts like saving, visuals play an important part, especially for young children. Come up with fun ways to demonstrate the concept of saving so your child takes an interest and contributes.
As your child grows, open a Savings Account to which they can contribute each week. Several banks have launched Savings Accounts for kids above the age of 10. These accounts can be operated independently by kids without any supervision from parents. All you need to do is to send him or her to the nearest bank branch to take their first step towards financial freedom.
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The idea of savings can be made rewarding by explaining to them the concept of interest and how the bank rewards people for saving more money. At the end of each month, show them the monthly bank statement which will motivate them to save more from their weekly allowance.
This is the first baby step toward setting your child up for a lifetime of good financial habits.
- Introduce Them To The World Of Investing
Once your child is comfortable with the concept of banking, introduce her to the world of investing. Ideally, when your child is about 14-15 years of age, he or she will be ready to understand products other than Savings Accounts such as Fixed Deposits, Public Provident Fund (PPF) and Mutual Funds. The advantage of teaching kids about investing is that they will understand that earning and saving money is not enough. It is equally important to let it grow for it to remain valuable in the future.
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- Involve Them In Shopping And Budgeting
Teaching your child how to manage money at a young age will not only help him or her to organise their finances as an adult but also impart the discipline to live within one’s means.
Take your kids to the grocery store to give them a hint of how monetary transactions take place. This will familiarise them with the concept of buying and selling. Encourage them to choose the best value products and use this situation to discuss concepts like spending, saving, and planning. You can also involve them in your weekly household shopping and in creating monthly budgets.
- Money Doesn’t Come Free
“Money doesn’t grow on trees”, is the clichéd line we all have grown up hearing. But let’s agree, it did help us understand the value of money to some extent.
At an early age, kids need to learn that if they really want to buy something, they have to wait and save to buy it. Money lessons at this age set the tone for their future. Say, for example, next time your little one asks for a shiny new toy, make him or her work for it. Help your child figure out how much needs to be saved each week in order to buy it. Delayed gratification teaches them patience and a value for money.
Explain to them the difference between wants and needs. It’s important to show that you can’t give in to every want of your child and that there are things that may not be worth the price being charged. Guide them in choosing things that they really need.
- Give Them Allowance
It is a good idea to give kids pocket money that fits in with your budget. Let your kids manage this money on their own, as handling money will help them develop decision-making abilities.
Allow them to make small choices on their own. For example, if your child’s friend’s birthday is around the corner, teach him or her to put away their allowance starting 3-4 months in advance to cover up the cost of a gift. As they grow older, give them more of a say in buying clothes, stationery etc. This will help them understand why one purchase may be a better buy than another.
Having said that, also be prepared for some goof ups. Let your child make mistakes and then do your best to make it a learning experience. The mistakes made will be small but the lessons learnt will hopefully be remembered later on in life. These small lessons can go a long way!
While you impart these important money lessons to your kid, do take note of these following pointers:
- Keep It Age Appropriate
You need to take extra care when you are discussing money with your kids. Adapt your message to your kid’s level. With children between 8 years and 13 years, it’s a good idea to talk more about money in a casual manner. For example, while shopping for groceries, compare two brands of the same product to explain value for money.
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- Use Anecdotes
When we launch into lecture mode, more often than not, kids try to tune out instantly. To keep things less boring, use stories and games to illustrate a point. There are a number of books and games available to teach financial concepts to children. So, the next time your child asks for a computer game, let him try some of the online games that teach money skills.
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- Model Good Financial Behaviour
Children are very observant and often soak in many actions simply from watching their parents. Try your best to get your own financial life in order to send a strong message to your kid. Pay bills on time, invest your money well and tell your kids how you are also planning for their future. This will make them realise that financial planning and good money management are necessary for a better future.
We are sure you’ll use these tips to make your kid a money genius. In case you are looking for investment options for your child’s future, we can help!