Finance is an important part of everybody’s life, including children. A sound understanding of money helps one to successfully navigate through the different challenges in life.
The importance of financial literacy for children can be gauged from the five target groups the Reserve Bank of India (RBI) has made for its financial literacy initiatives, and schoolchildren is one of those target groups.
Despite understanding its importance in life, it is not taught in schools, and that is where parents can step in and pass on the important financial lessons to their children.
Insufficient knowledge of money could lead one to choose ruinous debt options and spend on unnecessary things when they start earning. Children learn fast, and parents can leverage this learning potential for their children’s lifetime benefit. Here’s how to go about it.
Initiate Discussion With Children About Money: Money is not that a serious topic that children won’t be able to understand. Instead, an open discussion with them will make them more comfortable in asking questions about money, its importance, why it is required, where it comes from, and so on. Also, one may share one’s personal experience with money, any financial mistakes, or anything interesting related to money or its handling to arouse their interest in money matters.
Budgeting And Saving: You could start by telling your children on how to make a budget and how to plan expenditures from the income one has earned. Learning budgeting and planning expenditures according to the money available in hand would not only make the child responsible in money matters, but also disciplined and well-behaved who will unlikely make unreasonable demand for every toy and/or game.
You may also open a bank account in the minor’s name show the child how money grows when kept in a bank account instead of at home. This is also about giving them a sense of responsibility. Once the habit of saving is inculcated, you may tell them to use it for different purposes, and involve the child in planning on how to utilise the money. It is fun for children when parents get involved in their activities and interests.
Difference Between Need And Want: This is an important lesson. Even adult may come under the influence of surroundings and confuse between needs and wants in their financial planning. Teaching children the difference between these two concepts is very important. This requires critical thinking, but when explained carefully, for instance, such as telling them that food is a need, but games are a want, children would become more responsible. You may also ask them words, such as, furniture, house, car, bicycle, books, television, etc., where they will answer whether it is a need or a want. You can also explain these further to help them get more clarity.
Pocket Money: Giving money to children only when they need it or giving them money every week or month without teaching them the motive behind it, won’t make your child financially aware. So, instead, give them an allowance and make them learn about income, expenditure and saving, the same way any adult will go about it. This way, the child can also plan to save for a goal. Teach the child how they can use their money now or save it for a bigger purpose later.
Introduce Concept Of Compounding: Understanding the power of compounding is very important in finance. An early start will help in building asset with much less effort as against starting late. As a parent, if you introduce this concept from an early age, and the essence of compounding becomes a mindset, it will become a lifetime ally for your child.
All said and done, the only thing to note in your endeavour of imparting knowledge and skill to the children is that you should first practice what you teach, as well as reinforce the financial habits in them from time to time.
