by Dr. Sandeep Sahasrabudhe
Early lessons on money and finance can help kids avoid issues at later stages of their lives and build a foundation for financial literacy. Since it is not always possible for schools and colleges to offer courses on personal finance, parents must assume the responsibility of educating children on money-related matters. It’s never too early to begin teaching your kids about money. But doing so is not as easy as you might assume. Some parents don’t feel comfortable teaching their kids about money since they themselves are not savvy in this matter. Others believe it’s inappropriate to burden young children with conversations about money or think, mistakenly, that children are too young to understand financial concepts. In fact, researchers from the University of Wisconsin-Madison studied the behaviours and attitudes of students from 4th and 5th standard who were exposed to financial education and concluded that “younger students can learn financial topics and that learning is associated with improved attitudes and behaviours which, if sustained, may result in increased financial capability later in life.”
- Explain the fundamentals of saving
Young kids often may want to spend the gift money they receive for birthdays and holidays. However, as parents, it is crucial to make them understand the many wondrous benefits of delayed gratification. If your kids desire something special, you can use that opportunity to talk to them about financial savings for more significant purchases. Experts say young kids must learn to stop spending their allowance on smaller and immediate pleasures and save for the future to make bigger and better purchases. They may sometimes require sharing the expenses with you or covering the entire cost themselves.
- Educate them about spending smartly
One of the key pillars of financial understanding is distinguishing between wants and needs. You can start by citing an elementary yet effective example that we spend first on basic needs like food, clothes, shelter, and medicine. Meanwhile, wants such as vacations, toys, and entertainment are secondary and must only be bought after basic needs have been met.
- Understand how time helps grow money
While teaching various financial lessons to your kids, it is equally important to explain to them that money has a time value. Financial terms like simple interest and compound interest should be explained. Also, talk about how money invested for a long time in dedicated financial products has the potential to grow significantly.
4. Expand on the basics of math
Once your children start school and learn the basics of math, educate them about money and provide some practice. Play money games at home such as peter pig’s money counter, monopoly, monopoly junior, pay day, and financial football. Identify different coins, count them together and teach your child how to make change. This way, your child will learn how to use cash when that time comes.
5. Get your child a piggy bank
This simple action will teach your children the importance of saving and instil a sense of responsibility towards handling money. Encourage your kids to collect a certain amount in a particular time frame or suggest they save coins of a specific denomination. Turn it into a game to keep it fun and exciting. On a chosen date, open the piggy bank and count the savings. To encourage your children to save more, create a visual record, such as a chart, to teach them the basics of simple record keeping, and they can watch it grow.
6.Familiarise your kids with the bank
Take your children to the bank and open savings accounts in their names. Let them talk to the teller and conduct their business themselves with your support as needed. Make sure they understand the terms and conditions and suggest they commit to depositing regular amounts weekly or monthly. For more convenient banking, nearly all accounts are now accessible online. Having a bank account of their own will give your child a feeling of achievement, which could motivate them to save more.
7. Encourage your children to plan how to spend their savings
Planning for future spending motivates your kids to achieve their savings goals. It reminds them that they can buy whatever they want with enough money. Allow your children to dream big and encourage them to save more to achieve their goals more quickly.
8. Allow your kids to shop for themselves
Give your children their allowances when you go shopping. You can then observe their attitudes towards spending money. Let them spend some of it, be silly, and make their own choices. Part of the fun of having money is spending it. If your kids want to spend more than their allowance, encourage them only to spend what they have and advise them to be more frugal and patient. Educate your kids on sensible spending and explain the priorities when shopping. Also, remind them that at the end of the day, the most important thing is that they can buy what they want because they were able to save money.
9. Pay in cash
Credit cards are a great temptation to spend money you don’t have. So in order to avoid over spending, show your kids that the best way to buy items is with the money in their pockets. Try to keep it real at all times – handing over cash is the best way to learn how to use money responsibly.
10. Leading by example, explanation and applied practice
The best way to teach your kids the value of money and the importance of saving is to lead by example while allowing them some responsibility. Give your children an allowance for the things they might want to buy, and encourage them to save in various ways. Familiarize them with simple record keeping and the way savings accounts work. Leave the credit cards at home when you shop with the kids. These simple but effective steps will help your children learn how to manage money responsibly and prepare them for adulthood.
Lessons & Activities by Age:
- Preschool and Kindergarten: Ages 3 to 5
Children as young as 3 years old understand basic economic concepts, and by age 7, kids should have developed permanent financial habits.
This is a good time to start explaining that material goods cost money. Giving them a piggy bank will allow them to see what happens to their balance depending on the decisions they make. Show them how to set financial goals and how to meet those goals. And remember, parents have the greatest influence over children’s money habits, and at this age, your kids are looking to you to set an example and guide them.
- Elementary School and Middle School: Ages 6 to 14
At this age, you can let your child help with the grocery shopping, walking them through your decisions to shop at certain stores, seek coupons and sales, and select certain brands according to pricing and your budget. You should also begin discussing big-ticket items with them. You should discuss smart ways to save, how to see through clever marketing, how to negotiate prices, and how to avoid the pitfalls of loans. You can even teach children this age about compound interest, using real data as opposed to trying to explain the concept in the abstract.
- High School: Teens Ages 16 to 19
By the time your child reaches high school, he or she should be capable of understanding more sophisticated money management concepts and have a level of financial literacy that includes knowledge of earning, saving, spending, and sharing at the very least.
Talk to your teen about the value of money. This includes emphasizing the difference between wants and needs and making sure they know your values when it comes to money. These conversations won’t be easy, especially when they see their friends wearing designer clothes and whipping out their parents’ credit cards when they go out.
Just remember, you’re not alone. Every parent who cares about their child’s financial well-being and wants to instill positive values must teach financial management to their kids at some point. And, just as your parents told you long ago, it’s for their own good.