A checklist to help your child become Money-savvy
Amar is a CFA Charterholder and CFP, having over 20 years of experience in IT and Financial Services. He is very passionate about spreading financial literacy and has authored four bestselling books on Personal Finance.
13 Nov, 2017
Traditionally, Indian society has always shied away from discussing the topic of money. Some parents might touch upon the concept of piggy banks and saving early on but there is no formal financial education once the child grows up.
We live in an era where simply leaving our children a large inheritance will do more harm than good if the child is financially illiterate. Thus, ensuring that your children are financially literate is the best thing you can do for them. On an average, children between the ages of 5 and 12 are extremely receptive to financial literacy. So, it is best to begin introducing basic financial concepts during this period. Beyond this period, more complex terms and tasks can be introduced.
There are various ways to help your child become increasingly financially literate and independent. Without any prior experience, initiating this conversation can be daunting. Using the checklist given below, can give you a good springboard to having the money talk and inculcating good money habits in your children. The points cover a whole host of areas such as the successfully navigating through a bank, use of ATMs, insurance, investments and philanthropy.
<h(2)>The Importance of Saving
- Inculcate and encourage your children to develop a savings mindset. Explain the difference between needs and wants and teach your children about spending money only when needed.
- Give your child two transparent jars that will serve as piggy banks, naming the first one, ‘short-term or emergency’ and the second, ‘long-term’. The transparency of the jars is to ensure that the children see the money grow or decrease. This will make the children feel responsible for the balance in the jars.
- An effective way to get children to save could be to match the amount they have managed to save for a 3 or 6-month period and present that as the reward. However, this should be done only if there is consistency in the saving pattern.
- Another very important lesson to impart is that of treating all money with equal respect. No matter if the money has been received as a gift or as a prize, it should be treated like one’s own hard-earned money. Recommend that they save a percentage of this money, just as they would with their pocket money.
- Just like a passbook, give your kids a record sheet to help them maintain records of their pocket money and ask for an updated copy each month. Reward them when they keep records up to date and use this as a parameter to whether a decide a raise in pocket money is applicable.
- Open an account for your children at the earliest. Take them along with you to the bank and show them how to deposit the money in the account.
- Show them the different banking tools like a passbook, cheque book, account statement and an ATM card. This can be done as early as 5 years. Over the next few years, explain the utility of these items.
- Don’t shy away from letting your children use the ATM. Letting them use the machine at an early age is a good way to get them to understand that money in the machine belongs to them, that it isn’t free money or appearing because of magic. The reducing bank balance due to every transaction will also help the child feel accountable for the transactions being made.
- Children often perceive debit and credit cards as being the same. Thus, impress upon them the difference between the two. Each has its own set of advantages and disadvantages that must be made clear to the children.
- The gravity and responsibility of using a credit card can be explained with the help of a credit card statement. Use it to explain all the different terms and to highlight the heavy penalty that will have to be paid if full payments aren’t made by the due date.
- Apply for your child’s PAN card. Explain the need for it and what it is used for. A good analogy to describe it like a roll number in the tax department.
- Record keeping is a task, even for a lot of adults. Curb the inclination to put off this tedious task and be a role model for your children.
<h(2)>Investments and Insurance
- Discuss various investment options with your children and tell them where and how you’re making your investments.
- Help your child understand the basics of insurance and impress upon them the need for it. A good aid would be making use of your own policies for life, health, accident or car insurance. Giving them an accurate view of what the insurance would cover is also a good idea.
- For children to develop a healthy attitude towards money, understanding the value of giving is imperative.
- Post a certain age, help children raise funds for some cause. Schools do encourage this behaviour but emulating the same at home is also a good idea.
One of the most important things to remember is to let your child make mistakes; it definitely is the best way to learn. Guide them whenever necessary and use your own examples to make concepts and situations clearer. A great exercise for this is to take your children out with you for grocery shopping. Tell them that they have a limited amount of money and that they need to make prudent choices to make the most of their purchase.
Turning everyday experiences into new, learning experiences is your best bet for introducing money concepts to children. When something is new and seems novel, children are very eager to know more about it. Make use of this innate curiosity to get across the importance of financial literacy. Instilling these values in your children at a young age will ensure that they have a better grasp of concepts they will need later on in life. All it takes is a little effort, encouragement and innovation on the part of the parents to ensure a financially secure future for the child.
If you would like to know more about how to introduce financial literacy to your children or simplify complex financial jargon, check out Bill and Penny’s Money Adventures and The Art and Science of Teaching Children about Money.