Kids today are smart, sharp, observant, quick learners, and tech-savvy. But this day and age of social media, along with peer pressure, is influencing their wants and lifestyle habits. Also, with digital payments backed by UPI and credit cards, children are increasingly perceiving money as if it comes easily (which, in reality, it doesn't) and making impulsive purchases.
We all endeavour to provide the best to our children, within our means – at times even stretching our budget a bit. But giving them to understand the value of hard-earned money is equally important.
Without early financial literacy, children can struggle in the real world, making them highly vulnerable to impulse spending and predatory marketing.
Sadly, less than 5% of India's 1.5 million+ schools offer structured, age-appropriate financial education. In the urban regions, a Reserve Bank of India (RBI) survey highlights that only about 14% of students in urban schools have had any exposure to formal financial literacy. In rural schools, that exposure is almost zero. Also, most schools conflate math with financial education.
The fact is, today, financial literacy isn't just a matter of math but an essential life skill. If it's imparted at an early age to children, it can shape their money habits, auguring well for their financial wellbeing in the future.
Robert T. Kiyosaki, a celebrated investor and author of the bestseller Rich Dad Poor Dad, has beautifully remarked, “The single most powerful asset we all have is our mind. If it is trained well, it can create enormous wealth in what seems to be an instant.”
While your child's school may be imparting financial education, as a parent, you need to assume the responsibility of imparting smart money management lessons so that, in the long run, they cultivate good money habits.
Here are five ways you can impart financial education to children:
Introduce them to budgeting and engage
Children learn a lot by listening and observing. Also, research shows that, typically, between the age of 5 and 7, children form a relationship with money. Thus, sensibly engage them when you draw your household budgets.
At a very early age, they may not understand the niceties of drawing up a prudent household budget. But surely, they'll recognise that money doesn't grow on trees and every expense has an earmarked limit. In money-management parlance, budgeting will teach them to live within their means.
When they question you about the household budget, or have a view on it, also hear them out rather than ignoring them. Maybe they have a fresh and constructive perspective to add.
In addition, when they save or contribute positively towards the household budget, reward them. This will not only prevent them from being reckless spendthrifts but also boost their morale and enhance their mathematical and money management skills.
Bring in a few money games
Gamification is one of the most effective ways to teach children personal finance. It adds some fun to the learning exercise when the subject is rather serious.
Games such as Monopoly, Game of Life (similar to Monopoly), Cashflow (inspired by Robert Kiyosaki's Rich Dad, Poor Dad, which teaches how to be in better control of your finances), Payday (teaches how to manage your monthly budget), Pretend Store (where children can set up a mock grocery store and practice reading price tags, calculating totals, and handing out exact change) etc., can impart money management lessons if shepherded prudently.
Teach while you shop with them
Say you are in a supermarket or a grocery store. Involve your child when you are making buying decisions—by comparing quality, price, available discounts, warranty, and other product factors.
Also, help them distinguish between needs, wants, and luxuries, explaining in a light-hearted manner. Cite examples of products that have decent utility and are reasonably priced, comparing them to an alternative that may seem like an extravagant luxury. Show that a balance can be struck while fulfilling desires.
Likewise, introduce children to delayed gratification when they get carried away. For example, say it's buying an expensive gadget; don't give in to their wants soon.
Instead, educate them to delay this purchase, save some money first, and then consider purchasing it later. This shall teach children patience and self-control in handling money, which, sadly, are lacking in this age of digital payments and credit cards.
Children may like and ask for many things at a mall, in a store, or online, but they also need to be taught to recognise what's a priority and to work towards the other goals or aspirations they may have.
Potentially, it will prevent them from being impulsive spenders in the future and using excessive credit to back their purchases.
Introduce them to banking
Initially, you may introduce them to the concept of a piggy bank or a transparent savings jar. Watching the physical pile of cash grow as money is added may encourage them to save and add more. The tangible benefit is hard to miss.
But as children grow up, opening a bank account is beneficial to introduce them to the concepts of interest and the power of compounding, helping them recognise that saving and investing money have clear advantages.
When handing over pocket money, ideally deposit it in the child's bank account and ask for an account of it so that they learn to manage their expenses.
Moreover, they would gradually become familiar with banking transactions and recognise the nuances of personal finance, including how to read a bank passbook and use a debit card and UPI carefully.
Enrol into workshops on money management and investing
To equip children with money management skills and help them learn about investing, a plethora of programmes and workshops are available – both in-person and online.
They could potentially transform your child's outlook towards money, demystify complex financial vocabulary, help them understand how money can work for you if it is saved and invested wisely, and help them understand the nuances of personal finance with confidence.
To conclude
A seed planted early will bear sweet fruit in time and can help your children form good money habits.
Give them what you can afford, but, most importantly, instil the value of hard-earned money suitably and be a role model for your child. Ensure you're setting a perfect example as a parent and make sure your kids look up to you as money-wise parents.
Be thoughtful.
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