Children's Day 2021: Do keep in mind that the financial well-being of a family largely depends on how literate you are with finances and how effective your financial management is.
Children’s Day 2021: As parents, we always strive to give our children the best in the world. In the process, we try to make their foundations strong so that they can lead a fulfilling and successful life. Without a doubt, being careful, responsible, and disciplined are among the main traits parents would want to inculcate in their children. Similarly, basic financial literacy is equally important to impart to children.
Since money is something one needs to be careful, responsible, as well as disciplined with, making your children financially literate in the current times is a need of the hour. Often, parents miss out on this front, which, at times, could cause unwanted and difficult situations going forward. Sowing the seeds of financial management at an early age helps children to manage the real world with confidence.
If you haven’t started imparting crucial financial lessons to your child now, this is the best time to begin. Here are five basic lessons that your child should learn about money.
Value the Money: It is a good idea to make children understand that money is earned through hard work, and, to quote the earlier generations, not grown on trees. You should explain that using the money things not needed may be a waste of both money and efforts, and one should refrain from it. Additionally, you can also sensitise them to the idea of earning. For instance, you can ask children between 8-10 years of age to help you with some of the household chores or take on some small responsibilities, and in return pay them small token money for the same. If they don’t help properly, you may reduce the token amount. This would help develop a sense among them that money is not easily accessible. A fair sense of valuing money will develop this way among children.
Spend Right: As soon as children understand that everything brought for them costs money, you may try explaining to them the difference between needs and wants and the importance of prioritising their spends. For instance, children may want a fancy pencil box that looks good but may not last long. Here, you could step in and explain that a regular pencil box can be had for less money than a fancy one. Both can do the desired work with a regular pencil box lasting for long. As it is difficult to deny children small joys, you may want to offer trade-offs instead – like buying the fancy pencil box would mean a smaller colour pencil set – and let them choose what they would like to have more. Such regular interventions and explanations will help children understand that what they want may not always be needed. This will help turn them into rational spenders in due course of time.
Learn to Save: You may consider getting a piggy bank for your children to make them understand the process of saving. You can ask them to save the token money they would earn from you or monetary gifts from relatives to collect in the piggy bank, which they can then use to buy something big and expensive they really like. This will inculcate a saving habit among children and reduce the chances of being extravagant when they grow older. As they enter adolescence, you may consider involving them in a limited way while budgeting your monthly expenses. This will help develop a trait that money is a resource for fulfilling various necessities of life and thus should be used carefully. You can also consider opening a savings bank account for them and letting them check it to see how their money is growing.
Grow Your Money: If your children have started to understand the importance of money, take them to the next level where they can be made aware of how money can grow if managed well. It is here you can bring in the concept of investments and explain how it is different from savings. Early exposure to such ideas can potentially help children become smarter with the usage of money and understand the importance of investment. To start with, you may discuss with them how money grows in simple financial products like fixed deposits.
Money Loses Value: The concept of loss in value of money as time passes is an important lesson child should be introduced to as they turn 14-15. You may give examples of how much the day-to-day things cost when you were of their age. For instance, you can talk about how much a pencil cost 30 years ago and what’s the cost now. Give them illustrations that the price of a pencil was Re. 1 then and now it costs Rs. 5, which is a five times increase in the cost. This may induce curiosity in children and they would like to know the past prices of other things as well. Such discussions would help them understand that things get costlier every passing year as money loses its value.
Above all, teach children to be kind towards themselves and others when it comes to money. Teach them the importance of giving to the less fortunate and to make allowances for small splurges on themselves from time to time. After all, what good is money if you can’t spend it without feeling guilty or worried?
Do keep in mind that the financial well-being of a family largely depends on how literate you are with finances and how effective your financial management is. Imparting the basics of finances among children will certainly help their financial behaviour going forward. You may not always be there with your children and there will be times when your children would have to make financial decisions on their own. It is in such situations that learning from an early age will come in handy and they will emerge confident and empowered.
(The writer is CEO, BankBazaar.com)