How To Teach Healthy Financial Habits To Your Kids

Fun Facts About Childhood Learning

Before we start, here are some fun facts about childhood learning.

• Kids learn faster than adults.
• Parents and teachers have the biggest influence on kids.
• Children cultivate good or bad habits by looking up to their parents.
• Children learn all life-essential skills such as reading, writing, basic math, etiquette, ethics, etc. at home and school.

But one of the most important lessons in life is often neglected: How to handle money . While it is baffling that our education system doesn’t kids about money or money management, even parents don’t truly understand that financial decision-making is a quality that needs to be ingrained in kids from a very young age.

Why? If you look around, you’ll be surprised to find a large number of people struggling with loans and Credit-Card debts. This proves that our generation of adults grew up unaware of financial planning. To avoid a situation like this, it is important to teach your children about money when they are young and their minds are impressionable.

While it is never too late to cultivate healthy financial habits, you can start teaching your kids about money as soon as they are old enough to comprehend the world around them. This is often as young as three years old. Though you can’t talk about banks, Credit Cards and compound interest to a three-year-old, there are certain core money values that you can instil in them by following some simple exercises. Here’s how you can teach important money lessons to kids according to their age:

Age 3-5

The most basic lesson about money is that you have to pay money to buy something. Nothing in life comes free. Though kids will understand it eventually as they grow older, it is important for them to grasp this concept at a very young age. So, make your kids aware of different coins and currency notes. Teach them about the value of each note and coin by telling them the prices of everyday household things. For example, a toffee costs Rs. 1 but a packet of milk costs Rs. 20. Keep it simple!

The other important lesson to teach kids is that you have to wait to buy something. Each time you go to a shop, your kid will want to buy something or the other. Before going out, clearly explain the purpose and objective of the shopping trip. So when a child demands something, instead of saying that they can’t have it or telling them that you have no money to give in to their whims, remind them of the purpose of the shopping trip and tell them that they have to wait to buy what they want. Every time you stand in a queue, tell your kid that it is important to wait before you get what you want. Cool?

Age 6-9

Now that your child is not a toddler anymore, it is the right time to teach them the basics of savings and expenditure. Give your child an allowance every month and ask them to split the money and put it into two jars – a spending jar and a saving jar. Ask your child to think of a short-term goal like buying a toy, and explain to them that they can buy it for themselves when there is enough money in the jar. The money in the spending jar can be used occasionally for things like candy, snacks or ice cream. This way, your kids will learn to save money.

Also, involve them in grocery shopping by explaining that you switched from brand A of a product to brand B to save money. Discuss out loud and analyse together whether you really need a particular product or if you could do without it. Teach them that buying something in bulk is better sometimes than buying individual goods as it helps you save money. This way, your child will learn how to manage expenses.      

Age 10-12

Pre-teen is the right age to learn to about banks, interest and the benefits of saving money sooner rather than later. Take your kids to the bank and open a minor Savings Account for them. Teach them about interest rates, compound interest and how you can make more money by saving at a young age. Use numbers and examples while explaining the concept of compound interest and the importance of saving earlier in life (For example, you invest Rs. 10,000 at the age of 12, you will get Rs. 59,173 at the age of 30 if the interest rate is 10%. But if you invest Rs. 10,000 at the age of 20, you will get only Rs. 26,851 by the age of 30).

Also, at the age of  around 10-12 years, it is important to understand that you have to give up a few things in life in order to achieve greater goals. Ask your child to save for that skateboard or cricket kit that they have always wanted. Since they are slightly expensive, your child will learn to say ‘no’ to unnecessary expenditure like snacking every day in order to save more and invest in their dreams.

Age 13-16

Now that your kid is a teenager, it is essential to discuss college-education expenditure. Be upfront in telling your kid how much of the expense you can handle so that they don’t have unrealistic expectations about college. Ask your children to check out different colleges and the total expenditure including fees, hostel charges, food charges, etc.

Make sure that your child doesn’t get discouraged by expensive college fees. Teach them about scholarships and student loans so that they can make an informed decision. Teach them about how debt repayment can affect their lives after graduation and ask them to decide if they are willing to sacrifice things in order to repay debts. This way your child will learn about loans, debts, EMIs, etc.

Age 17-18

Now that your teenager is at the helm of adulthood, it is perhaps the best time to talk about Credit Card expenditure. You need to clearly explain that they should use a Credit Card only if  they can make a full repayment during the next payment cycle. Otherwise, they would have to pay hefty interest with each passing month. Teach them that a Credit Card should be used with discretion. Talk to them at the right age so that they can turn into wise, mature Credit Card users.

Now that you know how you can cultivate healthy financial habits in your kids, teach them when they are young so that they don’t make mistakes . Also, if you’re thinking about your own financial needs, you can check out BankBazaar for loans, Credit Cards and more!