How to Introduce Financial Planning to Your Children?
As parents, it is our duty to instil financial ethics in our children so that they can live financially secure
We often see that as adults, many of us have a poor understanding of money, and hence have a tricky relationship with it. Often, this relationship is defined by our childhood experiences surrounding money.
As children, we are influenced by our family’s financial status, the saving, spending and investing habits of our parents and family members, as well as their attitude and behaviour towards money. It is, therefore, wise for parents to have a formal and defined approach while introducing their children to money, and the ways to manage it for leading a good life.
So what is the right age to start introducing kids to the concept of money and what is the right way to go about it? Here are a few suggestions for introducing financial concepts to children from a young age.
Ages 2 – 4:
Children start observing and registering information at around 2 years of age. Introduce them to money by playing shopping games with them. When actually shopping, let them hand over the cash to the cashier and take the change. If they have started with numbers, encourage them to recognise numbers on cash and coins. Hand them a few rupees and help them buy something for themselves and pay for it.
Ages 5 - 7:
Encourage kids to earn. Incentivise them to learn new things, imbibe good habits and behaviour, help at home and motivate them when they do something well. Help them craft a piggybank or savings box. Teach them to save their earnings, keep the box safely, keep a count of their savings and check at regular intervals. Have your child set a goal to buy something like a toy, book, or dress. Make sure that this goal is not very difficult to achieve else the child may lose interest in it altogether.
Ages 8 - 10:
At this age, the child’s list of wants usually grows longer as they start desiring what their friends own. This is the time to introduce them to the difference between wants and needs. Tell them that while you would spend for their needs, they would have to take care of their wants. They will learn to make decisions on what item in their list they would like to work towards. It will also develop their ability to delay gratification.
Ages 10 - 12:
Start involving your child in financial decisions. Take them shopping. Share your shopping budget with them and then when shopping, keep discussing about what needs to be purchased on priority and what can be deferred to the next shopping trip. Talk to them about which deals can help save money, which items need to be of a particular brand and which items can be generic. And if you manage some savings, use the money to enjoy a treat with your child.
Ages 12 - 14:
Get them a bank account. Several banks offer children’s accounts that come complete with cheque books, debit cards and internet banking passwords. This not only excites the kids but also helps them learn about banking. Offer insights into how they can earn interest on their savings and the concept of compound interest, as well as how they can help their savings grow by refraining from withdrawing from the account. Ensure you teach them about safe and secure banking – both via online and offline modes.
Ages 15 – 18:
Encourage the kids to learn more about personal finance. Involve them in your financial planning, tell them about your different investments and assets. Take their inputs on what new investments can be made or what old investments can be revised to achieve short-term and long-term goals. Assign them the task to make a half-yearly report that provides an update on the family’s investment and assets.
Financial skills are of much importance to navigate through life. As parents and adults, it is our duty to instil financial ethics and behaviour in our children so that they can lead a financially secure life and be #FutureFearless.
The author is Chief Marketing Officer and Head - Products, Ageas Federal Life Insurance
DISCLAIMER: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.