Money lessons for your children

We all want to give the best to our children. We feel that our children do not need to go through the same experiences, difficulties and compromises we had when we were children. And true to our wishes, our children have experienced a very comfortable life where things have been very easy for them. They have been exposed to social media and television at a very early age and have huge aspirations and dreams.

Perhaps one concern we all have is that real life is tough and our children need to realise that. They need to realise the amount of hard work and effort that goes into earning money. As parents, we all wish that our children are much more sensible and careful when it comes to dealing with money. However, this is not something that will be easy for you. Inculcating the right understanding, respect and value for money and developing the right habits from an early age will take time and patience on your part, perhaps many months and even years. In this article, we will explore a few of the ways we can let our child on the path to financial literacy and right habits.

Things to do ...

1. Recording: The first step which everyone should do is to ask and teach the child to record all his/her spendings. Please do not comment or make any negative observations here as the child may stop recording those things or hide them from you. Let them record everything without fear. There are many mobile apps which help record expenses or instead this can be done the old way – pen & paper or diary.

   Motivate them to keep track of their spendings and give them pocket money with the small condition of maintaining the records and sharing it with you for next pocket money. Once there is a track of spendings over a few weeks /months, ask them to make observations. Take a back seat and let them self learn.

2. Budgeting: Once the children are habituated to keeping records, budgeting should come naturally. Follow a fix periodical pocket money /budget for them. To begin with, this can be for say a few days for small kids, then for every week and slowly progressing to å monthly allowance for more mature children. Once the children are habituated to keeping records, budgeting will be very easy as they know they have to live within that budget for the rest of the period. Just ask them their daily balance without making any judgements or comments. Your role should only be to be strict while giving your pocket money. Ask your children for any major events in advance and adjust your pocket money in advance but not post the event.

3. Patience: An essential element of learning is patience and this has to be inculcated slowly. There can be many ways of teaching this. For example, if your child has asked for any particular toy or gift, let them wait for it. You may either give an appropriate future date for the same. Alternatively, you may divide the money and pay them equally over many days while asking them to save the same. Eg. If a toy costs say Rs.2,000, pay them Rs.100 daily for 20 days and make them wait slowly till the full amount is accumulated.

4. Saving: Savings is the most important habit one should focus on developing. With basic habits of recording and budgeting, savings should come easy with patience. Show them how they can cut few corners /spendings and save more. Motivate them for saving with some extra rewards from your end once their savings targets are achieved. For eg., if they manage to save 20% of their pocket money, reward them with say extra 20%. Motivate your children to save larger amounts for bigger and bigger gifts/events. For eg., if they have managed to save say Rs.3,000 for one item/gift, instead of going out and spending, show them better options of say Rs.5,000 and ask them if they would like to have that. Put in your rewards as well. Let them take pride in saving big and then spending. From toys to cycles to electronics to even bikes, this habit can be great learning for your child.

5. Responsibility: Letting children learn with some real responsibility is a good way to teach them great values. One can begin with small responsibilities like caring for toys, asking one to get repairs for broken toys, caring for small pets like fishes in your aquarium or birds or other big pets like dogs for teenagers. Pets can be a very good way to develop empathy as well. Put as much responsibility on them as you can. Try not to interfere even if things may start looking bad, let your children take responsibilities and learn the consequences of not doing what is needed. Of course, you can lend a helping hand when the child is doing something. You may even give the responsibility to say buying food and other things for your pets to the children and allocate a budget for the same.

6. Participating: As your child grows and learns, start involving them in planning your household expenses. Let them also have their own share of inputs on things like outings, entertainment, purchase of electronics, holidays, etc. Value their inputs and discuss options. For eg., if they want holidays at some premium location, ask them if they are ready to forego /cut some spendings and wait longer? Also start to involve them in sharing and monitoring things like investments and insurance. Teach them as and when you start sharing. Slowly ask them to maintain all your financial records and documentation. Also let them participate in your meetings with your financial advisors /insurance advisors /tax consultants, etc.

Lessons and habits learnt at an early age stay for a long time in our lives. For our children who are exposed to a virtual world almost all the time, the realities of life need to be taught within our comforts as parents. Early lessons in money management and instilling the values of understanding of the importance of money, money's real value, patience, delayed gratification, etc will lay a strong foundation for financial well-being in life. This is of utmost importance for your child, even more than any educational course he/she may wish to pursue.