Dear parents, your children are lucky to grow up in a prosperous environment compared to your own childhood environment. A lot of us do not want our children to face the hardships that we ourselves faced when we were growing up. But often, we end up overcompensating by giving our children whatever they ask for. The downside to getting whatever you want the first time you ask for is that you stop appreciating the value of things that you get so easily. In this day and age, with commercials invading our drawing rooms and relentless peer pressure around our children, how do we teach our children the value of hard earned money?
More importantly, in today’s context where the inflation relentlessly eats into our savings year after year while at the same time savings and Fixed Deposit interest rates keep coming down, financial literacy has really become a non-negotiable life skill that all kids must learn to survive and thrive in this world.
Most schools do not have a formal financial literacy curriculum. So the onus is on us parents to teach our kids about money. But where exactly do we start and how do we go about doing it? There are a few key ideas that you need to teach your kids so that grow up money savvy.
The Need and Want game
Firstly, teach your children the difference between ‘needs’ and ‘wants’. For most of us who are reading this column, almost all our needs can be satisfied with the money we have and earn. Shelter, clothing, electricity, internet (yes, internet connectivity is a need these days), food, education, clean water and air are what most of us can afford. On the other hand, our wants are unlimited. While having decent clothing is a need, that expensive designer dress that you saw while window-shopping at your favourite overpriced shop is a want and not a need. Likewise, having a vacation is a need but an overseas vacation during peak season is clearly a want. Wants are unlimited and our life will not significantly alter if they are not fulfilled.
You can play a game of ‘Needs and Wants’ with your children. Make a list of things that you normally consume – be it goods or services and see whether your child can classify it as a need or a want. Often times, what they understand as a need could turn out to be a want after a round of discussion.
A visit to the supermarket
Where do we go from here? Needs are limited, wants are unlimited and our money and resources are also limited. So we should first satisfy all our needs and if we have any money left, then we can fulfil some of our wants. One way to put this in practice is to take your kid to the supermarket when you go shopping. You can make a list of items that you want to purchase. You can ask your kid(s) to figure out which of these items should be purchased first. You can gently “nudge” them towards purchasing all the needs of the household first. If you have any money remaining at all, they can indulge in some of their wants.
Give a regular allowance
The other thing that you can do to get your children to appreciate money is to give them a regular allowance or pocket money. Here, the regularity of the allowance is more important than the actual amount of the allowance itself. Teach them to maintain a journal where all inflows and outflows are entered as and when they are incurred. This way they will build the discipline to keep a record of their financial transactions, something that even a lot of adults do not do. By doing this, they learn the habit of accounting for their expense. They will know where the money is coming from and where it is going.
The other point of giving an allowance is to teach them to defer short-term enjoyment for the sake of a worthier long-term goal. To give an example, if you are giving your son Rs 100 every week and he wants a science kit worth Rs 1000, he has to save up for 10 weeks to buy that kit with his allowance. This would mean saying no to the usual expenses like chocolates, snacks, comics and ice creams.
Five fun things to do with your kid to teach about money
- Ask your child to find out the price of various goods and services consumed by him – This could be the cost of a guitar class, the price of a pencil box, school bus fare and so on. This will give the child an idea about the relative value of various goods/services.
- Teach them comparison shopping. When you take your child to a department store, ask them to check out competing brands of chocolates/biscuits and so on, so that they get a feel for intelligent shopping
- Ask them to help you out with next month’s budget. This way, they get to understand that money is limited and that it needs to be carefully rationed across to meet the needs and wants of the family members.
- Explain to them about merit scholarships and the fee structure of colleges. For example, a number of universities in India have a differential fee structure for the merit and management quota. This way the child will learn the financial benefits of studying and doing well in exams.
- Ask your son/daughter to maintain a journal to record regular spending. Promise them to match whatever amount they manage to save after the end of every calendar year. This will encourage them to delay gratification and get started with the savings habit.
Lastly, children go by what we do as parents rather than what we say. So, if you are trying to teach all of the above to your daughter, but you are not following any of the above inputs, it is quite likely that your daughter is not going to buy into your teachings. Therefore, as a first step, your own behaviour as a parent should be consistent with what you want to teach your children.
The author is an expert in financial literacy and Director of Money-Wizards
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