We teach our kids various skills today so that they can become responsible adults tomorrow. From cooking and cleaning to laundry, we need them to understand and learn these basic skills so that they can manage on their own. It is equally important to teach kids some early lessons to inculcate the right financial habits.
Make sure you cover these basics with your kids at the right age so they are well equipped to make the best financial decisions as they grow older.
1. You need money to buy things
Ideal age: 5+ years
Kids don’t grasp the concept of paying for things. From an early age, you can set the tone for them by helping them understand how money can help you buy things. Using money examples can even be used as a tool to teach your young one simple addition and subtraction concepts in math. This will not only help them understand money, but even get them interested in math!
As your child grows older, you can start explaining the concepts of why you go to work every day and how you earn money. Without getting into the specifics of careers and salaries, you’ll be able to help them appreciate that money is not an unlimited resource and that they should value what they get.
2. Make your kids feel included in money discussions
Ideal age: 7+ years
Including kids in money discussions helps them understand the broader concepts of money management. Use opportunities like demands for toys, festival expenses, and purchasing school supplies to provide them a basic understanding of budgeting and spending. Small tricks like agreeing on a spending limit with your child before you go out shopping or allowing them to carry their money in their wallet (even if it is kept on you for safekeeping) are quite handy in explaining the need for saving and the basics of budgeting.
3. Give them an allowance to teach them budgeting
Ideal age: 8+ years
It is important to teach your kids that if they want something then they need to save up for it. This teaches them hard work and to spend their money responsibly. You can give them a monthly budget (a small one for kids) so that they can inculcate the habit of prioritizing what they need, want, and don’t need so as to save money at the end of the month.
Let’s take an example where you give your 8 year old child Rs.1,000/month as pocket money. Let them know that they can spend it on whatever they want – desserts for daily consumption, a cool new superhero t-shirt, or even an expensive toy or gadget. Give them multiple envelopes or piggy banks so they can save for their different needs separately. It is important to remember that mistakes are equally important in the learning process as good decisions. So, while you should guide them in the right direction, the decisions on where they want to spend their money should be theirs.
4. Simplify complex concepts
Ideal age: 6+ years
Kids can be really smart if we only understand how to talk to them in a language they understand. Nobody expects a young child to understand stocks, investments, mutual funds, or chit funds at a young age. However, understanding the concept of letting money multiply over time will give them an early start to financially sound practices. The objective of this is to teach them that money when handled responsibly works for you.
You can start with a simple trick – start a simple saving and borrowing group within the family. Let them know that every month each member of the family will save Rs.50, contributing to make a big pot. And every month one member gets to take the entire money from the pot. This will continue every month till each member has taken the pot.
Of course you can customize this example to suit your own needs, but the idea is to break down the same tools you use in life into the most simple form they can understand at their age. This simple exercise will teach them the benefits of both – saving and borrowing money.
As they get older and enter their teens, you can even help them open a joint savings account or participate in a formal, government regulated saving and borrowing group on KyePot.
5. Teach them about credit
Ideal age: 10+ years
In today’s credit savvy world we do all our transactions through online banking or cards. This makes children think that money just magically appears out of nowhere and you can get whatever you want with those cards or a few taps on your phone.
If you don’t want your kids to fall prey to and then be unable to get out of credit card debt, it is important to teach them about the concept of credit and credit cards early.
6. Patience is the key to (financial) success
Ideal age: 10+ years
You have to teach them the importance of patience and that you have to wait in order to reap any fruits. Making them wait every month to get their pocket money helps to inculcate this thought. If your teens want something really badly then they need to save up for it month after month till they are able to afford it.
Talk to them about the benefits of letting your savings accrue compounded interest over a longer period of time. This way they’ll learn the importance of waiting.
7. Teach them to give
Ideal age: 5+ years
Young children can be very protective of their belongings, especially money. Therefore, it is important to teach them the importance of giving and not being selfish. You can motivate them to give a part of their savings to charity by setting the right example for them. If you follow a specific principle like donating 2.5% of your yearly savings, then ask them to do the same.
This will help them become good financial members of society, those who donate along with saving and investing money.
We hope you found these early lessons to inculcate the right financial habits in kids useful. We’d love to hear more tips and tricks that you use – please share them in the comments below.