Written by Venkatesh Varadachari and published on 12 May 2021.
Do your children know the worth of hard-earned money? Our finance expert gives some simple yet effective tips on educating children about being prudent with money
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?
In today's context where inflation relentlessly eats into our savings year after year while, at the same time, savings and fixed deposit (FD) interest rates keep coming down, financial literacy has really become a valuable skill that all kids must learn to survive and thrive in this world.
Most schools do not have a formal financial literacy curriculum. 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.
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, 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 favorite 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, what they understand as a need could turn out to be a want after a round of discussion.
We should first satisfy all our needs and if we have money left, then we can fulfill some of our wants. One way to put this into 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 kids 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, they can indulge in their wants.
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 a discipline to keep a record of their financial transactions. By doing this, they learn the habit of accounting for their expenses.
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. For 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.
5 things to do with your kids to teach them about money
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 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 behavior as a parent should be consistent with what you want to teach your children.