In Season 7 of the blockbuster TV soap ‘Desperate Housewives’, Lynette Scavo struggles with her two sons Porter and Preston who don’t know how to make themselves an omelette.
And they’re pushing eighteen!
Well, maybe your kids aren’t so bad and can make an omelette all by themselves. But do they know how to plan their finances?
Teach them. Here’s how.
Step 1: Introduce your child to his/her new bestie – the piggy bank
Every kid gets money as gift from loved ones including family and friends. So, the best way to teach him to save this is by encouraging piggy savings. Encourage him to save those lil perks in his piggy bank.
When he wants to buy his favourite toy, he can use some out of it. You can fix one day for a piggy bank opening ritual and ask him to count the savings managed over a period of time.
Step 2: Introduce him/her to the real thing – savings accounts
Savings accounts can be opened in the name of the child with either parent as representative. This can be the first step for your child towards a formal savings. Any cash gifts offered by friends and relatives can be deposited in this account. Banks also offer ATM cards for children.
You can take him/her to the bank one day and teach how to operate the ATM card and how a bank functions. This can also be used to demonstrate the compounding of money. This account can be transferred to his name once he/she becomes eighteen years of age.
Step 3: Ask and answer
Ask your child, what if he/she had Rs.1000 in one hand and Rs. 25000 in the other. And listen to the response. This would help you to understand if he/she can map out a plan for each sum. Also, ask whether he/she would save it or buy something with it.
Kids may also ask you many money questions. Don’t be surprised to hear questions like: How much money do you make? Are we rich? Why can’t he buy a PS4? Give them the truth on a need-to-know basis.
Step 4: Invest in children’s mutual funds
As a parent, one of the best things you can do for your child is to invest in a monthly amount in children’s mutual fund through a systematic investment plan.
This way, you can teach him the operating mechanism of mutual funds. Explain to them how it can mean more money at the end of the tenure as compared to a saving bank account.
Step 5: Part time fun as money making avenues
Every child has an inborn talent. So if your child is a good dancer, encourage him to participate in dance-athons. The money earned from such hobbies can be invested. Irrespective of how financially secure you may be, encourage him to do summer jobs and earn money on their own.
Financial planning for children is one thing, but teaching children the importance of money is quite another. Embrace the above tips to empower your child to be financially aware and independent.
Here is a quick list of parental advice you may need to offer from time to time:
For ages 3 to 5
- You need money to buy things and you can earn it by working
- You don’t need all things you want
- You may sometimes have to wait to buy something
For ages 6 to 10
- Shop around and compare prices before you buy
- Putting your money in a savings account to grow it
- How banks work and how to operate an ATM card
For ages 11 to 13
- Never give your personal information like a bank or credit card number online
- The sooner you save, the more your money can grow
For ages 14 to 18
- Understanding the budget planning at home
- Avoid using credit cards to buy all things you cannot afford with cash
- There are other ways to save money than a bank account