As a parent, how do you teach your kids an important life skill – financial literacy? We’ve got some tips for you.
Our nation is home to almost 17.5% of the world’s population, yet almost 76% of Indians do not have any knowledge of even the basic financial concepts, not even simple stuff like Credit Cards and interest rates. As a nation, we are yet to prioritise financial literacy. For us Indians, money is quite a touchy topic to talk about. Of course, it is an integral part of our lives but we prefer not to talk about it with anyone, not even our kids. Sadly, this is one of the reasons why we lag behind in financial literacy as compared to the rest of the world.
Our inability to grasp even the basic financial concepts can be the mentality we hold that money talks or financial literacy is for adults only. How much more wrong could we be? We fail to realise that our children are easily exposed to this so-called provocative topic – money – just like all the other provocative topics. And such outside exposure can actually form wrong perceptions about money in their minds.
What we are trying to say here is that we need to educate our children about money matters in their growing years itself. It is time that we discuss everything financial openly within our families, while our government, banks and financial companies such as BankBazaar do their bit in increasing financial fluency and inclusion.
We understand that parenting a teenager is a Herculean task. Especially thanks to peer pressure and kids wanting to keep up with their buddies. They want to own fancy gadgets and wear branded clothes to keep up with their peers. And making them realise the consequences of their financial decisions at this age is a hard-to-accomplish task.
Now the question is this – as a parent, how do you teach your kids an important (or rather, the most important) life skill – financial literacy? Let’s start with understanding what exactly financial literacy is.
Financial literacy is a broad term, but in simple terms, it can be defined as understanding basic financial concepts such as income, expenses, budgeting, savings, insurance, investments, taxes, risk management, assets and liabilities. And the earlier you start teaching your children about these basic financial concepts, the better they will become at managing money as they grow up.
Additional Reading: The National Digital Literacy Mission: Empowering India Digitally
How To Get Started
It’s very important to learn basic money management skills early on in life, especially during one’s teenage years if not before. But, unfortunately, a majority of the young teenagers today don’t have any understanding of even basic personal finance concepts such as income, expense, investment, loans and more.
Understanding basic financial concepts at an early age can help one become a financially independent adult later on. Most of the financial problems faced during one’s adult years can be avoided if kids are provided with proper personal finance lessons in their early years.
Introducing your child to the concept of piggy banks and educating them about the importance of savings is a good first step. But it shouldn’t end there. You need to let your child be an important part of family finance conversations too. Plus, you need to let your little one deal with money – the earlier, the better. If your child inculcates good habits early on, they’ll act responsibly in money matters in future.
Additional Reading: 10 Super Simple Money Lessons Mothers Can Teach Their Kids
You can start teaching your child about simple money management and allow them to handle money from when they are as young as 5 years old. It is during their teenage years that you should step up and teach them basic financial concepts and start involving them in household financial decisions.
There are aplenty real-life scenarios that you can take advantage of to teach your kid. Even simple money-related tasks and lessons like how to operate an ATM, how to write a cheque or encash one, how to make a household budget, how a Credit Card works, the concept of loans, etc. are a few you could start with. Apart from these, you may want to teach your kids these important financial lessons too:
Savings And Expenses
One of the easiest ways to help your kiddo learn about budgeting and managing expenses is by giving them a certain amount as pocket money every month. In order to make them financially responsible, you should tell them to manage all their monthly expenses with the same.
Sharoni Sharma, a 45-year old marketing executive, says, “I give my 15-year old around Rs. 1,000 a month. She takes care of all her expenses – from transport to weekly catch-ups with her friends – with this money. She adds, “If my daughter runs out of money within before the month ends, she doesn’t get even a penny extra. Although initially, she had trouble getting through the month, now she has learned the art of managing her expenses smartly.”
Needs Vs Wants
As a young adult, one tends not to differentiate between a need and a want. As a parent, you should help your growing kid to understand the difference between their needs and wants.
Shayan Roy, a 42-year old businessman from Kolkata, says, “When it comes to wants, delayed gratification is something that parents must enforce on their kids. One must teach their kids to save up and buy something they want rather than just indulging at will.”
Importance Of Investments
Manisha Kumari, a 35-year old accountant, says, “I just took a 20-day Europe tour last year and with my own money. Can’t thank my folks enough for having taught me the importance of investing. I started investing during my college days itself. I used to put away 20% of my pocket money in equity funds.”
It is not necessary to be earning to start investing. And this is one lesson you should teach your adolescent kids. Here, in India, the practice of giving money to kids as gifts, especially on festivals, is quite common. And teaching your kids about saving money and growing it can help them save up a lot of cash even before they start to work.
You can start by helping your kid open a Savings Account or a Fixed Deposit. And later, you can introduce them to equity investments, debt investments, stocks and the likes.
All About The Wrath Of Debts
We all know that spending in excess can lead to debts. And you’ll end up living your life just clearing your debts. If you do not want your kid to face the wrath of debts in the future, you may want to concentrate on these two important lessons:
- Irresponsible Credit Card usage – Stay away from credit debt
- Excessive spending versus the art of managing on a limited budget – Money isn’t infinite!
Additional Reading: Credit Cards – The Myth And The Legend
It’s Okay To Ask For Advice
As teenagers, kids face a lot of problems and they usually look to their peers for help. Connecting with someone like-minded helps solve most of their issues. Apart from their peers, they also have counsellors and, of course, their parents to help them too.
In their 20s, your teenage kids are going to need sound financial advice to help them with their investments and financial goals. But, unlike their adolescent years, most aren’t going to be open to asking for help. Ego issues, you see! So, you must make them understand, while they are still young, that it is okay to seek help from a financial advisor, a colleague/friend or even you/your spouse when it comes to making financial decisions.
Additional Reading: Meeting With A Financial Planner? Here’s What To Expect
Setting Goals
You must teach your young ones to set practical goals and work towards them. This is something they should be taught from early on. Kids can easily understand this concept if you give them simple goals based on what they want – like getting themselves a new bike or a tech gadget – and making them work for it by saving from their pocket money. Teaching your kids the importance of setting goals and working towards them will help them in their future when they want to invest in a house or a car or even their retirement.
In Short
The smart way to educate your teenage children regarding personal finance is by using practical examples and instances which matter to them. Practical hands-on approach and constant guidance are absolute musts while imparting personal finance knowledge to teenagers. Good luck!
Psst! BankBazaar.com can help you with all your financial needs. Just click the link below to explore.