By Amar Pandit
When Raymond Darashaw was a child, he believed that one simply needed to have a magic card (read debit card) to withdraw money from the nearest Automated Teller Machine (ATM). And his parents allowed him to believe that for quite a few years. Of course, as he grew older, he realised that he needed to have money in his bank account in order to withdraw it.
When children are growing up, parents scramble to enroll them in all kinds of courses like dance, art, swimming and others. However, very few parents take interest in teaching their children about managing money. In fact, most parents don’t have the time and some even lack the skill to educate their children about finances. Well, you don’t need to be an actual financial whiz to do so. Children basically need to understand the importance of money. And, more importantly, the importance of savings.
However, in most families, parents shy away from even discussing money with their kids because money matters are supposed to be an ‘adult thing’.
The best way to make them understand the relevance of money is by letting them make their own decisions from an early age. That is, give them small amounts and allow them to spend. And of course, add a carrot in the end that if he/she is able to save an ‘X’ amount from their pocket money, there would be something nice waiting for them.
There are a few questions that you need to ask yourself:
# What were your initial experiences around money?
# Did you get an allowance? If you did, were there any rules around it or not?
# What money attitudes and habits would you like your children to have?
# How do you plan to inculcate these habits in your children?
Irrespective of your wealth spectrum, the following should be taught to children before it’s too late:
# Delaying gratification: It is not necessary that one must have everything now. It’s very important to delay gratification and buy things later. Tell and encourage kids to work for a distant goal and remind them that they don’t have to have a reward right away. Being patient helps them to set a goal, make a plan and take small steps towards the goal.
# Money doesn’t come easy: Yes, you have to work for it. And there is no reason that your children should not develop this habit as well. Of course, it does not mean that their pocket money should be linked to household chores. But if they do something that you would have paid someone else to do, give them some extra allowance. This will help them realise the value of money.
# Encourage them to save: Get a piggy bank or open an account for them. Tell them that for every rupee they save, you will match that with an equal amount at the end of the month. But while savings is a great habit, they also need to understand the importance of spending. An occasional purchase that will make them very happy is important. And when such occasions come, take them to the bank so that they are aware of concepts of savings, budgeting, banking and investing.
# Needs versus wants: While visiting malls and shops, children often get lured by discounts. For instance, if a toy car or a doll could be on a discount of 20 per cent. But your son or daughter may not actually need it. In such circumstances, you have to make sure that they understand that buying something at a 20 per cent discount when they already own it may not be a great idea. Instead, the entire 100 per cent can be saved.
Of course, as they grow older, there will be concepts of insurance and taxation that will help them understand the entire gamut of finance. But they can wait. For now, it is important for them to understand savings and spending.
And remember, just like in Darashaw’s case, it is not the child who needs to be blamed. The onus is on parents to shoulder this responsibility. As American columnist Bob Talbert said, “Teaching kids to count is fine, but teaching them what counts is best.”
(The author is CFA and Founder & Chief Happiness Officer at HappynessFactory.in)