Raising Kids With Good Money Sense
Happyness Factory is a Goal Based Planning platform. We aim to spread financial literacy and help people make sound financial decisions.
10 Apr, 2018
We recently came across a young man’s tweet whose parents let him know as a child that he didn’t own anything he had. It was their house, their stuff and their rules. The privileges he had could be curtailed anytime. Interestingly, the young man asserts that his parents’ approach to disciplining worked, as it made him and his siblings grow up into responsible, respectful and productive adults.
In the Indian context, we may feel his parents’ approach was rather stern. Yet, today with urban household disposable incomes steadily rising, and as parents raising kids on whom the thrill of saving up for a much-awaited toy is lost, we have the responsibility of inculcating good money values in our children.
School curriculum gives money management skills a complete miss. There is so much focus on imparting mathematical, artistic and other esoteric skills while the more valuable skill of money management is neglected. So how do parents go about raising kids with good money sense?
Making kids money wise
The key points of teaching money skills should include healthy values about money, setting goals and priorities, making prudent choices, delaying instant gratification and understanding the virtues of hard work.
The best way to give kids money lessons is to let them handle money, depending on their age and maturity. Hand change to your 4-year-old and let her pay it at the counter to buy the Diary Milk. She learns that things are bought in exchange for money.
When allowances come in, teach the concept of saving as paying oneself first. Get a piggy bank and inculcate the good habit of saving, even if in small amounts.
Older kids need to be given the opportunity to make prudent choices with money. Give them a little more amount than what they require for their after-school snacks, bus/rickshaw fare and the regular spends to facilitate this. Initially some mistakes are bound to happen but that is far better than ending up with financial blunders in adulthood.
The extra money thus saved may be spent on a piece of clothing, getting a new accessory or gifting a friend or sibling. Let them learn the joy of giving not only for the receiver but also the giver.
You might not involve kids in all the family money decisions or discuss the total household income and spends. However, you can involve them while planning specific goals, like taking a vacation; what different expenses are involved, what choices can you consider in terms of the stay, travel, etc.
Age wise financial education
In our experience, kids are most receptive to financial education between the ages of 5 and 12 years. Not that kids over 12 do not appreciate financial lessons, but it takes more patience as they will have developed certain money habits. They are now consumers, being influenced by peers and targeted by advertisements.
At ages 5 and 6 years the learning is mostly by experiencing things. You can begin by letting them handle coins, paying change at the counter, putting money in a piggy bank.
Minor bank account can be opened for slightly older kids. 10 year olds can be taught withdrawing money from the ATM and by now they would know that money first needs to be deposited in the account to withdraw.
Sensitize your teen to the concept of inflation. 10 years back, a McVeggie that costs Rs 70 today, cost just about Rs 45, and 5 years back Rs 55. Why do things cost more as time goes by? Nudge them to think along those lines.
You can now teach them why interest rates matter, whether on deposits or loans. Introduce the power of compounding. Explain how compounding can make money grow over time and by postponing consumption now we can do more with that money later.
If you have given an add-on credit card to your teen make them aware how credit cards work best when used as cashflow management tools and can spell disaster if used irresponsibly.
Kids in the late teens should be able to choose prudently for things like day-to-day expenses, especially if expected to live separately during higher studies. In addition, knowing the technicalities of writing a cheque/DD will come handy, as many payments for applications, fees are done in DDs.
All said and done, children learn a great deal by passive observation. Even if parents don’t give direct money lessons, kids inadvertently tend to pick up financial traits from them. Therefore, always remember the little eyes watching how you go about your finances!