As a parent, I have come to understand that it is impossible to teach your young children everything you know. So I live by the principle that I will let go of all the outliers and focus only on the fundamentals for now. If we nail the fundamentals of life right, I’m sure, our children can learn to build on those, a life that they can truly value. By fundamentals I mean, good behaviours, good eating and sleeping habits, focus on physical and mental health, knowing the value of culture and community and of course money. Children handle money from a very young age. Given that, are we doing enough to help them handle their finances responsibly? This article is a practical guide you can use to teach your kids about money so that they make money decisions wisely throughout their lives.
When should we start teaching about money?
My suggestion would be to start as early as possible. Even young kids are capable of understanding the concept of money. The day they understand that if they give out some metal or paper, they can get their favourite toy or snacks is the day they are introduced to the world of money. It is interesting to know that money, like love is perceived very differently in different families. For some, having more of it, is the highest mark of success and happiness while for others it is never there when you really need it. Kids can hear family woes about it or positive stories like a promotion for dad means more money for the family. The story of money is going to be recounted thousands of times to them in multiple ways. It only makes sense to get them ready for this never ending hide-and-seek with money.
How to teach kids about money?
Understand what your kids think about money
Children have great imaginations and it also extends to money. They tend to come up with a lot of stories about how we earn money or have money. For instance, my elder one once asked me, ‘ Why do you have to work everyday’? So I simply told him that I was paid to do my job and that is how we will have money. So he suggests, ‘Why don’t you finish your work in one day and bring all the money from there so that you don’t have to go 30 or 31 days and bring home small amounts of money everyday?’
Conversations like these are a great openers to introduce the concept of money. Kids are, by nature curious and they will come up with more questions once you introduce them to a topic. Utilise that opportunity to make learning fun.
Practical tips to teach your kids about money :
- Show them different denominations
- Let them lead money conversations their way
Make money lessons age appropriate
All children do not view money the same way, just like all adults do not understand money the same way. Make your discussions age appropriate, so that the child can relate to it better. If your kids does not seem interested in that topic right now, shelf it. You can always come back to a natural conversation later. Don’t force talks about money. It will only make them more disinterested.
Practical tips to teach your kids about money :
- Send kids to nearby local grocery shops (in a safe manner) to buy small items . It will help them confidently handle money (how to count the correct denomination and how to get back right change, how to calculate discounts, how to apply coupons). They would also note how different items are priced differently.
- Play simple math games with kids involving money.
- Take them to different stores and help them observe how different payment methods are available.
Start with the concept of savings
Every week I give my children twenty rupees each so that they can save them in their piggy banks. When relatives visit, or during festivities, children are sometimes given money. All the money goes to their savings. Then, when they have enough money, they can utilize that to buy toys or snacks or small presents for their friends under our supervision. If they do not have enough to buy things, teach them to wait till they save enough money. It will teach them the concept of ‘affordability’.
Practical tips to teach your kids about money :
- Give them pocket money, weekly or monthly and teach them to save.
- Make them accountable for their money. It will help them take responsibility.
Track expenses
It is important to know where your money is going. Sadly, even a lot of adults don’t do it and they end up repeating their spending patterns carelessly. It is an essential habit when it comes to handling money right. Your kids need to know what they are spending on, when they are spending most and how much.
Practical tips to teach your kids about money :
- Ask them to prepare a tentative budget for their allowances if they have regular expenses.
- Prepare a monthly report on their savings and expenses chart. They will learn to see patterns of their own behaviour.
- Call out on their expenses if you feel too much money is being drained by something unhealthy, like fast foods or frequent visits to video game centres.
Price Vs value
Teach them the difference between price of a thing and the value of a thing.
Price is what you pay and value is what you get. Price is superficial where as value can be intrinsic or extrinsic. It can have material value or emotional value. The worth of a product should include both price and value.
Practical tips to teach your kids about money :
Stop asking what the price of everything is and judging a thing by only its price. It will only lead to an unhealthy obsession with luxury consciousness and escalating usage of high-end brands. Ask them to look for its value.
Discuss about inflation
Elders in the family usually when talking about the past talk about the price of things in the past.
Example – When I travelled from place A to place B, it was only 2 rupees.
Example – We used to get ice cream for three rupees after school.
These kind of conversations are perfect opportunities for add-ons about money conversation. Teach them what inflation is using simple examples. It is even better if they are able to understand inflation in products they are familiar with. It could be food or fuel for car.
Practical tips to teach your kids about money :
- Use examples they are familiar with. If you are raising your kids in a multigenerational family, you can explain it even better with more data.
Show them Savings + Investment = Smart money
The majority of last generation wasn’t big on investments. They were very much into savings though. In my own house, my parents had bank savings, post office savings, loose cash in kitchen cabinets, chit savings etc. They basically distributed excess cash everywhere for safe keeping. Their intention was to add more money periodically. Their income was limited which meant, savings was crucial for their survival. It eventually lead to a fearful attitude towards money. Stock markets and other financial instruments were considered the privilege of the rich.
Now with the current level of financial knowledge being dispensed in social media, in corporate conversations, among friends has led me to believe that most earning professionals have some inkling about the importance of investments.Investments help you to grow your money. Savings teach you to hold onto your money. ‘Save for a rainy day’ is an apt expression even for the changing times of today. Kids should understand savings first and then investments as they grow older.
Practical tips to teach your kids about money :
Younger kids understand savings better. For older kids, you can start by watching financial news with them. Though they might not understand everything, they might start picking on one or two points of interest on their own. Wait for them to ask questions. Don’t try to force financial knowledge, it would never work.
The power of ‘compound interest’
Middle school children are taught compound interest. It is the best time to reinforce it. Basically everything in life works according to the principle of compound interest – both positive and negative habits. The same applies to money.
Practical tips to teach your kids about money :
Give real life examples with small numbers that are easy to understand.
Assets and Liabilities
One of the popular investment options in India, is real estate. The only other investment that actively competes with it, is Gold in the traditional Indian families. Show kids a sneak peak into your assets – Just enough to help them understand how their future is secured through assets. Same way, when we talk about liabilities like home loans, car loans etc, they understand the balance of assets and liabilities in our own household. For starters, it is enough for them to understand that when assets are greater than liabilities, they will lead a comfortable life.
Practical tips to teach your kids about money :
Don’t hesitate to answer questions about assets and liabilities. It is enough to just give them a broad picture. They will learn the intricacies when they grow and their mathematical and economic sense develop.
Modes of payment – Debit & Credit Cards / UPI/ Cash
Finally let them know the various modes of money handling, their pros and cons.
- Cash
- Debit cards
- Credit Cards
- Cheque
- UPI
- Net Banking
Children are very observant and even if we don’t formally teach such things, they are shrewd enough to know the basics.
Practical tips to teach your kids about money :
Address misconceptions about money. For example, a child might think a credit card has no limit or serious consequences. That is actually not true. Such misconceptions about money should be addresses as early as possible.
Conclusion
Many households are not comfortable discussing finances or any other concept of money. Money management is also an essential life skill among other vital skills that helps us lead a balanced life. There are multiple smart ways in which money can be used to secure our families’ future. There is no point in trying to hide money conversations when it is one of the pivotal concepts of life. So begin educating about money early. Mismanagement of money has serious consequences some of which can persist over a number of years. Yet we hesitate to discuss about wealth management. When we equip our children with a positive approach to money, they are neither scared of it nor confused. Money will become yet another smart tool that enables them to lead their lives in a safe and confident manner.
