Raising Money-Smart Children
Have we prepared our children to manage money when they grow up? Isn’t it an essential life skill that we should impart to them?
By Dr Priscilla J S Selvaraj
How many parent-child conversations are punctuated with phrases such as, “Money doesn’t grow on trees,” “Remember, it is hard-earned money,” and “I wish you knew the value of money,”?
Here’s one such interaction between a father and his six-year-old son:
Roshan: Dad, can I have a new bicycle?
Dad: Why? What’s wrong with your bicycle? We bought it only last April.
Roshan: Yeah, but you see, Chandru’s dad has got him a new one.
Dad: That doesn’t mean you too need a new one. You should know that money doesn’t
grow on trees.
Roshan: Of course, I know that. It is the bank cashier who gives you money. Why don’t you ask him?
Here’s another situation where a mother and her five-year-old daughter are at a store:
Andrea: Amma, do you have some money on you?
Amma: Why, darling?
Andrea: I like that picture-book. I was wondering if we could buy it.
Amma: Come, let’s check the price. Hmm…well, it says … I think I have enough money for it. Here, place it in the cart.
Andrea: Thank you, Amma.
Let’s compare the two situations by answering these questions:
Which of the two children has an understanding of the basic concept of money?
Which of the two parents’ reactions will help children become good money managers when they grow into adulthood?
Why children should be taught money management
Money-management is a core life skill, which will empower and equip children to face the financial challenges of adulthood. It will give them the confidence to build a secure future. Without the knowledge of how to manage money, children will end up having poor spending and saving habits.
Here are some key reasons for children to be taught money management:
- To gain financial literacy
- To know the value of money
- To know the value of products
- To know the cost of living
- To maintain day-to-day affairs effectively
- To become money-wise
Let us see how this can be done. First of all, let us begin with the basics.
Basic money concepts children should know
- We need money to buy things.
- Earning, spending and saving have a direct bearing on each other.
- We earn money by taking up employment / running a business.
- We use both visible and invisible money – cash and coins; cheques; debit and credit cards; online money transfers.
- Sometimes, we may need to depend on loans to meet unexpected needs; however, there are risks involved in this.
Next, let us move on to what parents can do to groom their children to manage money efficiently.
10 Tips to help your children become good money managers
1. Shopping with them
Many parents may feel that shopping with children is a nightmare; on the contrary, shopping opens up opportunities to make children handle money. You can ask them to hand over money to vendors, cashiers, parking lot attendants, etc. You can teach them to count the change you receive. You can even teach them to compare prices of products.
2. Giving them financial responsibility
You can give them a weekly or monthly allowance and help your children manage it by asking them to divide it under three different heads – for now (spend), for later (save), for sharing (share). This can be an easy and enjoyable task if you give them three jars with these labels. Apart from allowance, you may even reward them with money for household chores they do or for their achievements. There is a divided opinion on such rewards; so, use your discretion in implementing this. For older children, you may open a savings account. Most banks allow children over 12 years to operate their own accounts. They can deposit their allowance or cash gifts received on special occasions in their account. In general, children should be encouraged to accompany their parents to banks to understand financial transactions. But, just make sure they are not noisy while you are performing your transaction. Most banks do not encourage mobile phones and noisy children!
3. Talking to them about the source of money
Tell children that you get money as wages or salary for your work/returns from your business. Explain to them that the money you get from the bank is the money that you put in there.
4. Discussing family budget with them
Talk to your children about the family income and expenses, and how you manage them. Tell them specifically about the allocation of funds for various purposes - food, clothing, education, health, etc. This will make them aware of how the household is run. You may even show them how you keep track of your expenses; you may show them the bills or your diary of accounts. All this will help them keep an eye on their own expenses. Be careful about not overdoing it, as the exercise should be aimed at helping your children understand money management and not to get them stressed.
5. Differentiating between needs and wants
Teach your children quite early in life to differentiate between needs and wants. This is the key to being good money managers. While needs, being the basic requirements for life, have to be met; wants need not always be fulfilled. They can wait, as they are nothing but our wishes and desires. Children should also be taught to resist the urge to buy on an impulse. Impulsive shoppers and shopaholics can never manage their money well.
6. Developing the habit of savings
Encourage your children to develop the habit of saving. Teach them that it is always important to put aside a portion for the rainy day. Initially, you can begin by saving on their behalf. As they grow older, you can get them to save on their own. Ask your children to set goals when they save. For example, they can save for a trip or to buy something they can’t afford right now. Such goals will encourage children to save rather than spend money immediately. Children should also be made aware of insurance plans relavant to them.
7. Exercising caution while shopping online
While online shopping saves time, it comes with its share of risks. Therefore, you should educate your children about safe online shopping. Teach them to never share their personal information or bank account details with anyone. More importantly, teach them that it is not legal to shop online until they have attained a specified age.
8. Evaluating advertisements and critically viewing them
Have open discussions with your children while watching advertisements. With the world of advertising and marketing focussing largely on children, it is essential that children learn to evaluate advertisements and judge them critically. This will enable them to make wise judgements while buying products.
9. Being wary of credit cards / borrowing and paying interest
Discuss with children the risks involved in using credit cards and borrowing on interest to pay for something. Teach them that it is always better to spend what you have rather than spend what you don’t have and pay for it later. However, they should also be told credit cards are important tools at times of contingency. If they are to be used, their payment deadlines have to be met.
10. Be role models
Children always learn by imitation. Therefore, ensure that you are good money managers yourselves. Watching your spending and saving habits will prove to be the best lessons in money management for your children.
Beware! As the old adage goes, ‘A fool and his money are soon parted.’ So, let us teach our children to be money-wise.
Based on inputs from Selvaraj Peter, retired Deputy Registrar of Co-operative Societies and Senior Auditor of more than 40 years. Additional inputs from the Chief Manager of a Nationalised Bank who wishes to maintain anonymity.
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