Train them young!

Raising a child is a tough job. While the joy of shaping and nurturing a life is immense, the responsibility it entails in terms of inculcating positive values and right beliefs is equally colossal. At a young age itself, we focus on sharpening the social, academic and extra-curricular skills of our children, making financial management skills take a backseat in the learning process. However, we need to understand that if we want our children to be financially independent and competent in the future, we need to start teaching it to them now at their young age when their learning capabilities are strongest.

The importance to educate the next generation in key financial lessons has been recognized across the quarters. Financial sector players, particularly banks, have reiterated the importance of teaching kids about money management by launching innovative products. A major initiative in this direction is allowing children above the age of 10 years to open a savings account with them. These minor-operated accounts can be managed by children with minimal/no supervision from parents. With withdrawal limits limited to a certain extent and a large number of attractive benefits, these accounts impart independence and a sense of responsibility amongst children.

Another initiative on similar lines is that of pre-paid cards. These cards are linked to the mobile number of the parents who also decide the amount of top-up allowable on these cards. The card PIN is given to the children so that they have the liberty to spend money as they please, with the parents at the same time monitoring these spends through mobile notifications.

A major reason why money lessons must be imparted at a young age is because young minds are always curious and highly impressionable. They are more open to experiencing new things and learning new concepts. Healthy financial habits can be taught by linking key financial lessons to fun activities. As per the age group of the child, parents can start with simple financial lessons and then introduce more complicated concepts as the child grows up.  The following guide can be followed for these lessons:

Age Group Lessons

3-5 years Good things come to those who are patient

6-10 years Make the best use of what you have

11-13 years Your efforts will take you closer to your goals

14-16 years Starting early will give you a head start in the long-run

16-18 years Always pay attention to details

The best way to teach our children financial management is through communication. In order to ensure the child absorbs the right financial habits, it is necessary for the parent to communicate with the child at the correct moment and have regular financial talks. Over a period of time as these conversations become a habit, daily discussions on key financial concepts can help inculcate positive financial values in the child. The following topics can be discussed:

Practicing patience is important:

Patience is important not only in everyday life but also in investing practices as well. A long-term horizon enables investors to enjoy greater fruits of returns. Being patient to excel in every sphere is an important lesson which we must teach our kids. This habit can be developed by discouraging instant gratification and tactically spreading out their demands for new clothes, toys or picnics over days. Tantrums should be handled by making them understand that sometimes it is necessary to wait for things to happen.

Hard work pays:

Children should understand the importance of working hard in order to earn money. This can be done by simply linking their pocket money to household chores. An amount of payment can be defined for easy everyday activities like cleaning their room, filling their bottles etc. For difficult chores, the remuneration can be increased accordingly. The money can partially be paid in cash and partially deposited in their savings account or pre-paid cards. This would teach them about the dignity of labour and the importance of saving.

Expenses should be budgeted:

Limits can be defined with regard to the spending habits of children. Certain discretionary spends like eating at a restaurant or buying a new toy can be allowed only from their pocket money. If in any month, they fall short of money for something they want, they should be asked to wait until next month to buy the same. However, if that cannot be done, they can be made familiar about the concept of borrowing and lending. Certain amount of pocket money can be given to them in advance, and then deducted from their next month’s allowance.

Financial goals should be clearly set:

Children should be asked to set some big goals for example buying a new bicycle or a new watch and then be asked to save for them. This will enable them to plan and accordingly strive to fulfill these goals. They can set a time frame and accordingly calculate the monthly amount they would need to fulfill the goal. Certain boosters and incentives can be given to children from time to time or in case they accumulate a certain amount, in order to help them. This would keep them motivated and on track.

Save early and regularly:

In order to make our children familiar with the magic of compounding, they should be asked to save early and regularly. This can happen by introducing them to the concept of SIP with their pocket money and asking them to save a certain amount of money in regular installments. On the basis of this, a monthly interest can be granted to them. Children as well as parents must understand that just like a head start in a race improves one’s chances of winning, starting the process of investing early-on improves one’s chances of accumulating wealth.

Gather thorough knowledge:

Performing a thorough research is important in order to make strong financial decisions. Kids should accompany their parents to grocery stores so that parents can ensure that their children check properly before purchasing a product. They should be asked to read the price and expiry date of all products before purchasing them. It is also important for them to compare different products on the basis of price and features.

Become an ideal idol:

There is no doubt about the fact that children pick up habits from their parents. For kids to absorb healthy financial habits, it is important that parents also behave sensibly and prudently when it comes to handling finances. Few examples are:  

• Parents should try and avoid having fights on money matter in front of their children
• Financial planning should be made a family activity and kids should be encouraged to share their views
• Parents should show financial discipline
• Parents should keep a healthy asset mix in their portfolio

Even if parents can afford to create a financially comfortable future for their children, it is important for them to remember that their kids will not truly value this comfortable life if they do not understand the real value of money. One can use the above ideas to make a fresh start this financial year and groom their children to grow up and be financially independent adults.