Children learn their lessons in money management through experience. Whether it is receiving money as a gift from family or relatives on festivals or occasions, or spending that at the school canteen, or raising funds for a charity.
As most schools in India impart little to no training on how to handle money, the responsibility of teaching children the fundamentals often falls on the parents. The easiest way to do that is by making money a part of the child’s everyday experiences. Here are some ways to develop the right habits.
Make It Fun
Playing games related to money could help familiarise children with the concept. “Giving them practical lessons and making them go through basic experiences where they interact with money and comprehend its value is the best way to start,” says Hemant Beniwal, certified financial planner and director at Ark Primary Advisors, a financial planning firm.
For instance, one could devise a game of coins, where they can match coins of the same value and make piles.
Taking them for grocery shopping and involving them in making purchases can help them assign a value to the coins they play with at home.
When they grow older, they can be encouraged to participate in small plans involving money. “Involving your children in areas of the budget, such as entertainment, dining out, vacation, clothing, birthday and holiday expenses, and streaming services, may be suitable,” says Beniwal.
Let Them Handle It
Though children imbibe a lot from their surroundings, first-hand experience can benefit them a lot. The best way to do that is to let them make the run to the local grocer for immediate family needs. That will also hone their basic calculation skills.
Once they are past the basic phase, a monthly allowance can help them make money-related decisions regarding their spending pattern.
But this can happen only if parents set certain ground rules. “As parents, you must ensure that your children are aware that they will not receive additional funds if they spend their pocket money before the allotted time,” says Beniwal.
It is also important to identify the expenses that the child will take care of from the pocket money.
Giving children a lump sum during periods, such as summer holidays, and giving them a free hand on how they want to spend it can eventually teach them to differentiate between needs and wants. Once they realise they have to make the money last for a longer period, they will learn to budget their spending and focus on what they need.
That said, parents should pepper these steps with fruitful conversations on money matters. “Give them a budget and let them choose what they want to do with it. Engaging them is more important than preaching or reprimanding them,” says Sweta Jain, financial planner and CEO, and founder, Investography, a financial planning firm.
Make Them Worldly Wise
According to Renu Maheswari, CEO and principal advisor, Finscholarz Wealth Manager and a Sebi-registered investment advisor, helping children earn extra money through small jobs, should they want to spend more than their allowance, would also prove helpful. “This will teach them the value of money and the efforts that go into earning money,” she says
Interacting with handling money in public can also be a huge learning experience. “If you want to give them a taste of real-world finance, encourage them to put a stall in the school or community fair. This will be a huge learning and expose them to real-world issues,” says Beniwal.
Build The Savings Habit
By the time they are teenagers, you should introduce them to basic financial ideas. “As your children grow up, list all their short-term goals (such as purchasing video games, clothing, and shoes) and long-term objectives (such as purchasing a bike or saving for college education). This will help your child in setting goals and also prioritising them,” says Beniwal.
To help them understand how goal-based savings work, ensure the pocket money pays for their discretionary spending as well, such as buying a new phone. “This will encourage them to identify what is more important for them and help them save for bigger expenses. This will also help them understand the benefits of delayed gratification. For bigger goals or purchases, help them invest the savings from their pocket money and understand the concept of growth of money,” says Maheshwari.
Making them aware of the effects of inflation on the price of a product and assisting them in estimating the potential future value can be useful. “Telling them how much their school fee has increased in the last five years can be a good example,” says Beniwal.
Make Them Assess Themselves
Children should also learn to assess their own spending habits and patterns to ensure they don’t repeat any mistakes they may have committed. “Encourage them to review at the end of the month whether they have spent their money wisely. Also, encourage them to think if they should have done something different. This will help them learn to evaluate their own decisions,” says Maheshwari. Ask them to keep an account of everything in an excel sheet or diary, she adds.
“In case they go overboard or incur interest, they should be made responsible to pay for it with their future pocket money. This discipline will go a long way in sensitising children about the concept of money, plastic money, and credit when they come of age,” she adds.
Introduce Organised Finance
It’s not enough to just open a savings bank account in your child’s name. Encourage them to operate it on their own once they are teenagers. Teach them to deposit their pocket money in it and withdraw it when in need.
When you are confident, they can handle small amounts of cash. You could give pocket money through prepaid cards to familiarise them with the concept of plastic money, too. These days, there are pocket money apps too for a similar purpose (See Does Digital Money Pocket Money Work For Your Child?).
Transfer a fixed amount at a pre-scheduled date every month, irrespective of their expense. Explain to them the concept and why you are doing that. This can be followed by debit cards attached to an account with limited money for the year.
In all this, be careful to not let them make money the centre of their lives. “Make sure you’re not giving too much importance to money, but to the values around it,” adds Jain.
meghna@outlookindia.com