If you do not teach your kids how to manage money, someone else will !
And I guess that’s not the risk you would like to take! Few of my friends and readers who regularly read my blog told that the articles are greatly helping them to understand personal finance and investing in various ways. If you are learning money management now- but wish you knew these much earlier in your life, why not give your kids the head start and set them up to win the money at any age.
This has been a particularly difficult year for each one of us to save. But while we are staying home with kids, to the extent you can, go over the lessons that can help your kids learn the skill in good times and bad.
How to teach A, B, C, D… of money to kids (Pre-schoolers)
Ages: 6+
To most children this age, money seems to grow on trees. They have a vague understanding of their parents get them food, clothing and toys. It seems to a child as though – people just go to the store – get what they want – and Leave.
While Financial literacy is not part of the core curriculum in Indian schools, adults are struggling to master it, who will and how to teach kids about money in their way? Here are my tips
1. Use a transparent jar to save.
Most of you might have bought a piggy bank for your kid, it’s a great idea that you thought of introducing them to save money at a young age. But this does NOT give kids a visual.
When you use a transparent or clear jar, they see the money growing.
Today, they have few rupees, tomorrow few tens and few rupees. Talk to the kids about this and make a big deal about it growing!
Here is a link to buy a transparent jar on Amazon: https://amzn.to/2SKcKQu
2. Set an example.
A study says that money habits in children are formed by the time they are 7 years old. Little eyes are watching you. If you are slapping down your credit and debit cards every time you go out to dinner or grocery store or shopping, they will eventually notice. Or if you are arguing about money at home, they will notice that too. Set a healthy example for them and they will be much more likely to follow it when they get older.
3. Show them that things cost money.
Instead of just saying “son, that toy car costs ₹ 200”, let them pull out few notes out of their jar, take them to the store and physically hand over the money to the cashier. This simple action will have more impact than a ten-minute lecture to less than 10 year old.
There are four essentials your child should learn at this young age:
- Earning: Parents work to earn money. Money is not grown on trees 😮
- Spending: It costs to buy things, small things like books to big thing like a house.
- Saving: Saving in jar is increasing money. All money need not be spent.
- Giving: Some money can be spent to help the needy. It is a good deed. It makes both the giver and taker happy.
How to teach money to children (Elementary and Middle schoolers)
Forward >> Ages: 10+
4. Discuss Wants vs. Needs.
The first step in teaching kids this age, the value of saving is to help them distinguish between wants and needs. Explain that needs include the basics, such as food, shelter, basic clothing, healthcare and education. Wants are all extras- from movie tickets and popcorn to designer sneakers, a bicycle or the latest smartphone. Show your budget as an example to illustrate how ‘wants’ must take a backseat to ‘needs’ in terms of spending.
5. Goods vs. Services.
Money is not always spent on physical items (goods); sometimes it is spent in return for another’s efforts (services). Vegetable vendor sells goods and a cobbler or dentist is providing a service in exchange for money.
6. Show alternate costs.
Once children cross 10-11 years, Consider saying them “If you buy this toy, then you won’t have money to buy that pair of shoes”. At this age, your kids should be able to weigh decisions and understand the possible outcomes and what alternate things can happen instead of buying a plastic toy. Teach them that when money runs out, it runs out!
7. Give commission-treats, not allowances.
Don’t just give your kids money for sitting idle. Some people believe in paying allowances based on chores they do around the house like taking out the trash, cleaning their room, stacking up their books and toys, helping siblings with their homework… But NO, these chores are non-negotiable and it is a contribution to the household like everybody else in the family.
Beyond these, give them some small works according to their age and pay commission-treats in terms of money. This concept helps your kids understand that money is earned- it’s not just given to them.
Also while giving these money treats, everyone must understand that what the money must cover? Is it school snacks? Computer games? Extracurricular activities?
8. Avoid impulse buys.
“Mummy, this sports gear looks perfect for my game and I love it, can we buy it please?” This age group really knows how to capitalize on the impulse buy- especially when it uses someone else’s money.
Instead of giving in, encourage the child to wait at least a day before they purchase anything over ₹200. It will be likely still be there tomorrow and they will get time to rethink (sometimes they even forget they were thinking to buy something like that).
Children can learn the importance of living within their means, which is one of the basic tenets of saving.
If they still want to buy it and you did, a month later, ask your child whether they’re happy they bought it. “Was it a good value? Did it serve its purpose?”
This helps them to reflect and learn what is worth buying and what isn’t.
9. Set Saving Goals.
To a kid, being told to save – without explaining why – may seem pointless.
Helping children define a savings goal can be a better way to get them motivated. If they know what it is they want to save for, help them break down their goals into manageable bites. For example if they want to buy a ₹1000 video game, for example, and they earn a cash-treat of ₹50 each week, help them figure out how long it will take to reach that goal, based on their savings rate.
10. Stress the importance of giving money.
Once they start making a little money, be sure to teach them about giving. They can pick an old age home, charity or even someone they know who needs a little help. Eventually they will see how giving brings joy not to just the people they give to, but to the giver as well.
Teaching children emotional literacy and developing their capacity to empathize are key steps towards collaboration and civility. If you introduce compassion and philanthropy to your kids early, they will likely become eager volunteers and kind-people as they grow.
11. Short-term vs. Long-term goals.
While saving to buy a house or a car are long term goals, saving to go on a picnic on this month-end is short-term. If your child has something expensive on their wish list, establish that as a long-term goal and encourage them to save up.
Remember:
- Leave room for mistakes. Part of putting kids in-control-of-their own money is letting them learn from their errors. It is tempting to step in and steer kids away from a potentially costly mistake, but it may be better to use that mistake as a teachable moment. That way they will know in the future what not to do with their cash.
- Learning to save must be an ongoing discussion. Whether you schedule a weekly check-in to talk about money or make money-talks a part of your daily routine, the key is to keep the conversation going. Making saving a regular part of your child’s routine can lay the foundation for a bright financial future.
- People have a choice on how to spend their money. “Some choose nicer cars and houses. Some choose experiences. Going over the choices with your children helps them understand your values and that life is full of choices.”
- Kids will follow your lead. If you complain and stress about money in front of them, they will internalize this and have their own issues with money when they get older. Remember that kids are constantly observing adult behaviour and building their habits and worldview around your actions.
- There are a lot of good reasons to teach your kids about money. For one, you don’t want your children repeating your own financial mistakes. Also, if you raise financially shrewd adults, chances are they won’t someday be asking you for money. By helping them, you’re helping yourself.
As this is a post which I long awaited to write, I found myself writing beyond the average length of my other articles and since I do not wish to compromise on any of the important tips by shortening the article, I have chosen to split the article to two parts. This is Part-1 of “How to teach money and its management to Kids – The Beginning” and Part-2 “How to teach money and its management to Kids – The Conclusion” will be posted soon. (Did that sound like sequels of Bahubali? 😃 Well of-course money is today’s Bahubali too!)
