Educational institutions are excellent for the knowledge and know-how they imbibe in young minds. While these institutions are growing, adapting, and offering much more than the traditional bookish test-based curriculum they once dwelled on, they still do lack far behind on teaching a specific topic – ‘Financial independence or money management.’ This topic has no place in educational curriculums to date. And, it is alarming, to say the least.
Only 27% Indians are financially literate.1
As adults, moving out of our parent’s homes and starting life on our own, the most critical aspects we need to be aware of are making, managing, and saving money. Unfortunately, most young adults learn about money management the hard way, either by getting their fingers burnt and losing some of their hard-earned income or by miserably failing at it until their future is debt-ridden.
But, before we point fingers at an external educational system, as parents, it is first and foremost our responsibility to inculcate healthy money management habits in our kids at home. Children are fast learners, and they best learn through example. So here are a few ways you could help your child instill a healthy relationship with money:
I see, and I remember
How do YOU do it?
What’s YOUR relationship with money?
Are YOU the right example for your child to follow?
Think about it. Your relationship with money is what your child is witnessing; that will be their ‘new normal.’ So, if your child sees you with a load of EMIs, debts, and barely any savings, that is how life is, according to them. Or, on the flip side, if your child knows how you put your monthly expenses and investments first and only then splurge on the lifestyle you live, then that is what they will grasp. You are unconsciously setting the bar for them in these early days of their lives.
Parents need to know that their money habits are carried forward as the foundation in their children’s lives. It is up to the children as they turn into adults to decipher what is right and wrong, but in essence, it all begins at home. Your carefulness towards savings, expenditure and investment etiquettes are absorbed by your young ones and will play a vital role in their life ahead.
I hear, and I forget.
Nobody likes a lecture, especially if it is on a complex topic. Money management can be a tricky topic to grasp, so trying to get your kids to understand money matters by explaining it to them alone may not be enough. Here are few things you can do to encourage the money conversation subtly:
Be open – Introduce your children to the concept of recurring monthly expenses incurred in your household. Explain to them the necessary expenses like bills, rent, grocery expenses, EMIs, and more. Help them understand the importance and differentiate between lifestyle expenses and essential expenses.
Involve them – Encourage them in your financial ideations and plans. Teenagers who receive pocket money will then understand the concept of budgeting and prioritizing their income.
These are basics steps to add to your kid’s understanding of the concept of money and the importance of having steady sources of income. But as I said, nobody likes lectures or theory alone. So add some practical knowledge to aid their growth.
I do, and I understand.
How can you equip your children to save better and invest?
Saving – Start by opening a savings account or even a piggy bank for the younger ones. Let them see how their money accumulates. Try to input ideas on interest and investments like an RD or FD and let them see their money grow.
Planning – We drill into our kids on what they should become when they grow up, like a doctor, lawyer, journalist, etc. We plan years in advance for their CATs & SATs but do we teach them to plan their money goals too? While you teach them to save, teach them to save with a goal in mind too. For instance, if they want a specific toy or the latest play station, ask them to start saving today towards that goal.
Investing – Instant gratification is the norm today. We want it, and we want it now. Similarly, kids expect their wants to be fulfilled instantly. The process of planning and saving will imbibe in them the sense of understanding that money does not grow on trees or overnight. Show them the benefits of investing in small ways and how they could put their money to work. How! You may ask:
- Ask them for a loan from their piggy bank, which you will return to them with interest at a later date. (You’ll teach them the concept of lending and borrowing)
- Encourage them to invest in creating some unique articles and selling them to your friends and neighbors. (You’ll teach them the concept of entrepreneurship)
- Through the monopoly game, you can teach them the power of investing at the right place and time. (You’ll teach them the concept of ownership and rentals)
- Ask them to sell an old-owned product (like their cycle) and use that money to replace it with a new bike. (You’ll teach them the concept of depreciation)
There are numerous simple ways to educate your children on money management. In today’s competitive world, the need for financial literacy is vital. Give your child the advantage of managing money the right way; it will give them a head start in their life tomorrow.