Money is one of the most important things you need to have in order to survive in this world. And yet, schools hardly teach anything about it. Hence, you as parents can take it upon yourselves to introduce your children to money management and it should begin as early as possible.
Knowledge about personal finance can make your children thrive in their lives. It’s not just about earning money, it’s also about saving, investing and building a relationship with money. In this blog, we will discuss 7 valuable lessons around money that you must teach your child starting at a very early age.
The value of earning money
We all know that earning money is not that simple. It requires hard-work, patience and strategy. Children must know this from a young age. You can teach your children this concept practically by making them earn an allowance or pocket money.
One method is to link a child’s earnings to the completion of important household works and academic achievements. This approach teaches children that money comes from hard work and effort.
You can also teach your children about the concept of “Needs” and “Wants”. Your Needs make up all those expenses that you cannot do without, whereas your “wants” comprise of any discretionary expenses.
Teaching children about budgeting
Budgeting means having an action plan for saving and investing. You must inculcate the habit of budgeting in your children from an early age.
A simple method is to create three jars labelled “spending,” “saving,” and “giving,” and agree on a percentage of money to put into each jar. Older children can use a notebook or an excel spreadsheet to manage their budgets.
You could also give your children a project about saving money to buy something they really want. This way, they can plan the time needed to save for that particular item. This can be further enhanced by adding an element of investment to teach them how money grows when invested wisely.
Encouraging savings
Young children may not grasp the concept of saving for long-term goals like higher education. Instead, it’s more effective to set short-term goals and offer incentives for saving.
For example, if the monthly pocket money is Rs 1,000, aim to save at least 30% of it. If your child saves Rs 300, you can match this amount the following month, increasing the pocket money to Rs 1,300. This approach motivates your child to save more and teaches the importance of savings.
You can open a savings account for your child and encourage deposits. Watching savings grow can be very motivating. Depending on age and the amount saved, you might also consider investing in a Public Provident Fund (PPF) in your child’s name, which offers good long-term returns.
Teach the power to make decisions and learn from mistakes
Teaching your children about money can be challenging because you want your child to make the right decisions. However, for a child to truly understand money management, it’s essential to practise these principles.
Discuss what your child wants, offer advice, and then let your child make the final decision. If things don’t go as planned, help your child understand what could have been done differently.
Teach about debt
Children often know little about debt. You can talk about any debt that may have existed in your family or any current loans you might have. This will help your child understand how to use leverage to their benefit.
You can also show your children how to use a credit card wisely. Additionally, explain the concepts of impulse purchases and spending money wisely through credit.
The right monetary attitude
You must ensure that your child doesn’t grow up with a fearful or overly causal relationship with money. It’s important for your child to appreciate money and possess gratitude for it.
Teach your child to appreciate what has been received from parents or inheritance, as each generation has worked hard to build a fortune.
Gratitude is the most important money attitude. If your child has more money than you did in your childhood, make sure gratitude is appreciated.
Tell your child it’s an opportunity to have more than you did. Each generation has worked hard, and that’s the only reason this wealth exists. Encourage your child to use what is available to take another leap, take risks, and create opportunities that you never had.
Avoiding greed for money
Greed can be a problem when it comes to money. Once you have earned 1 crore, your next milestone might be earning 10 crore, and then 100 crore. It’s justifiable to have these milestones, and they are achievable. However, you should not take shortcuts to reach them because greed can bring you down.
Know the value of the money you already possess. To earn more, you must have a proper plan for how you want to proceed. Teach your child the value of “enough” and to never take shortcuts to earn money.
Be the Example for all the things you want your children to learn from you. Whether you realise it or not, your kids closely observe everything you do. Try to demonstrate smart financial decisions by involving your child in your plans. Let your child vote on what to save for and then show how you follow through.
By being a positive guiding force in your child’s life and teaching fundamental financial skills, you will help your child enter adulthood with a solid understanding of how to manage finances independently.
Geojit Financial Services believes that financial literacy should be a right for everyone. Get smarter in money matters today with us.
