“Money is Good For Nothing If You Don’t Know The Value Of It By Experience.” A quote by P.T Burnam explains the importance of financial responsibility and starting money management from a young age. The first step of handling money should be learning the value of it which wisdom can only be taught by parents.
Basic things such as creating a budget, staying financially disciplined by sticking to that budget, eliminating extra spending and saving should be taught to children from a tender age to infest the value of money in a growing mind.
Sanket Prabhu Director and Head-Wealth of Finhaat said, “Teaching children the value of money from a young age can set them up for financial success.”
Here are some suggested key values and lessons to consider for children aged 10-14:
1. Earning Money: Prabhu advices to help children understand that money is earned through work. This can be taught by giving them age-appropriate tasks/chores in exchange for a small allowance.
2. Savings: Savings can be encouraged by setting up a simple savings account. Prabhu recommends teaching them to save a portion of their money towards something they want in the future.
3. Budgeting: “Inculcate financial discipline through the idea of budgeting. They can learn to allocate their allowance into categories like savings, expenditure and/or even charity,” Prabhu said.
4. Wants vs. Needs: Helping children differentiate between essential needs & optional wants will teach them to manage their wants according to the money they have. For example, school supplies & nutritious food are 'needs' while extra toys are 'wants'.
5. The Power of Compounding: “Introduce your children to the concept of interest or compounding through real-life examples & storytelling,” advised Prabhu.
6. Resist Impulsive Expenditure: One way to discourage impulsive behavior is by reminding them to think twice especially on high-ticket purchases.
Equilibrium Between Teaching Value Of Money And Scarcity Mindset
Prabhu said, “Striking a balance between teaching kids the value of money and avoiding a scarcity mindset is all about fostering healthy attitudes around money.”
Here are some strategies parents can use:
Frame Money Positively: Use language that emphasizes choice and priorities instead of scarcity. Show that money is a tool for thoughtful decision-making, not just restriction.
Balance Saving with Enjoyment: Encourage saving but allow small treats, helping children see money as a way to achieve goals and enjoy life without guilt.
Model Gratitude and Financial Confidence: Involve them in simple budgeting, celebrate accomplishments, and practice gratitude to instil a sense of financial confidence and balance.
Thumb Rule For Teaching Good Financial Habits
When asked - Is there any thumb rule to teach investment basics and saving money to children? Prabhu responded, ”Yes, there are simple thumb rules you can use to teach children investment basics and saving principles.
Some of the effective ones are-:
The “Three Jars” Method: Prabhu elaborated on the rule of three jars by advising the parents to take three jars and label them as “Save,” “Spend,” and “Share”. So, every time they receive money, help them divide it in three jars. Prabhu said, “This teaches them budgeting, saving for goals, and sharing with others in a tangible way.”
Rule of 72: A method to understand the power of compounding. Prabhu explained, “Teach them that if they divide 72 by the interest rate, they can roughly estimate how many years it will take for their money to double.”
Diversification: “Don’t put all eggs in one basket, which helps them appreciate the importance of diversification,” Prabhu explained.
Efficient money management for teenagers or students living in hostels
Prabhu explained that teenagers and hostellers must manage money efficiently in order to avoid frivolous spending. Creating a daily budget to keep track of how much they are spending and what is a good way to keep track of their money and cut down or find alternatives for those that they are overspending on. Prabhu added, “Avoid or limit credit & borrowing and practice prioritizing needs over wants consistently.”
Many outlets/restaurants/services offer discounts to students, which they can use for their necessities. They can even explore part-time earning options, which can ease financial strain and stay on track with limited resources.
Advice for Lucrative Investments For Students with Limited Funds
Prabhu highlights key things in his statement such as; keeping it simple. He advises to start small, Diversify – even with a limited amount, stay disciplined and reap the benefits of the power of compounding.
For students, SIPs in mutual funds are a great way to invest regularly with small amounts. It’s affordable, builds discipline, and averages the cost of buying units over time, reducing the impact of market volatility, he concludes.
