With growing costs, it is important for parents to teach their children the importance of money management from young age. Here are some tips that will make the task fun and effective:
Cash for purchases
We should encourage children above a certain age when making small ticket purchases like a cup of coffee, a snack, movie tickets, etc, to use cash. This will allow them to understand and witness a physical transaction involving the exchange of cash for goods or services. It drives home the point that in order to make a purchase you have to hand over your hard-earned cash.
A young child of 4-6 years of age can be taught the difference between needs, wants and wishes. Usually, this is when children start receiving monetary gifts from friends and relatives on birthdays and other festive occasions and is probably even getting some pocket money as well. It is a good idea to help them understand what they can do with the money that they receive.
Teach them to spend judiciously on needs versus different wants. Instead of gratifying each demand, you could take the opportunity to teach them the importance of savings. For fixed expenses each month like mobile phone recharges or multiplex or café visits with friends, encourage them to start maintaining account and to spend within the amount of pocket money they receive. Encourage them to set a limit or a budget for their expenses.
A teenage child can be introduced to the concept of making small savings every month towards a particular long-term goal such as the purchase of an expensive gadget. This could serve a teenager’s first lesson in financial planning and setting long-term financial goals.
For long-term wishes children need to be taught the virtue of patience. Instead of depending on you to fulfill every wish, teach them that long term savings will help them fund their own wishes like buying an expensive gadget or the wish to throw a big birthday celebration. Help your child understand that by saving up their money now, they can buy things that are unaffordable today. Encourage children to save diligently with a specific goal in mind.
For children under the age of 10, it may even be a good idea to open a bank account that comes with a debit card designed for children in particular. This will also help children learn the lesson of valuing purchases and gifts as they would have earned it. Children should also be taught to look at their bank account and see how it increases with the addition of interest. This will build the desire to save and act judiciously with money from a very early age.
Visit an ATM, supermarkets
For a young child, the ATM is actually a great place to start, where you can tell your child that money does not really come from a machine, but when you use the machine to withdraw funds, you have less money in your bank account.
For slightly older children who accompany you to a supermarket, ask them to help you in picking out household supplies. The affordability factor is important in this context and the supermarket is a great place to establish this.
This will also be a good starting point to explain to children why one brand/product is more expensive or different from the next.
As children emulate the habits of their parents, it is important to lead by example by encouraging the value of thrift, setting out financial goals, saving up for emergencies and spending judiciously.
The writer is senior director and chief distribution officer, Max Life Insurance