As a parent, you want to give a lot to your children. You want them to have the best clothes, latest toys, good education, and much more. You work hard today to give them a better future.
The harsh reality is you cannot be with them forever. Hence, you must lay the correct foundation when it comes to money. Teach your children the money lessons. It will help them do well in life even when you are not supporting them.
We know, in India, financial literacy is only 3 to 4%. One of the primary reasons for it is that parents are not comfortable discussing financial topics with their children. If we need to increase financial literacy in India, you have to ensure your kids are financially literate.
Today, we will talk about money lessons – you have to start teaching your children.
Lesson 1 – The value of money
Children from a young age should understand how money comes into the house. They should know that you work hours every day to receive a paycheck. The second most essential point is that they should know money is limited – in general, and in your house. Once they know the basic rules of money, they will start to value money. Once your child is about ten years, start involving them in money matters. For example, ask them to calculate the monthly expenses. You can reward them for the work done and deduct money if work is of poor quality. The exercise will also help them understand how money is earned and its value.
Lesson 2 – The needs and desires
Your child should understand that every item you bring in the house needs money. Once this is taught, try to explain the difference between wants and desires. It is one money lesson that can help them in many ways. You cannot go wrong here. If children are able to understand the difference between wants and desires from a young age, it will help them forever. Make them understand that money is limited, and desires are endless. Hence, they should learn to prioritize spending. Let them put everything they ask in either want or desire bucket. You should fulfil the desires, but not all. Make them learn where to put a stop to the desired bucket.
Lesson 3 – Saving is important
From the above points, your children know the value of money and how it comes to the house. The next important lesson to teach them is saving. Tell them that whatever you are earning, you are not spending everything – you save for their future. To help them better understand, get them a piggy bank and help them start the saving process. You must make them understand why they are saving – perhaps to buy an expensive toy in the future. Once they are in their teenage, you can start involving them in your saving schemes. Tell them different ways in which money and introduce the concept of goals.
Lesson 4 – Money should grow
The next lesson to teach them is ways to grow the money. Teach them – if managed well, money can grow fast. Introduce the concept of investing and tell them how it is different from saving. To show them the magic of investing – work with a live example. You can do the below exercise with them.
Tell them – for every rupee they SAVE, you will INVEST the same amount. When your child breaks the piggy bank, let them count the total amount. Tell them how much the same money you invested has turned to. For sure, they would be amazed to see the difference and would be eager to learn the ways. You don’t have to tell me about the stocks and mutual funds. As a start point, let them invest in Fixed Deposits. Once you think they are old enough to learn other instruments, start talking about different investment options.
Lesson 5 – Money loses value
Last on the list but important lesson – not only for kids but for everyone. You should teach your children that if they only save and not invest – what the impact of it is. Let them understand – if they save today to buy a toy that costs Rs 2000. In a year, when they accumulate the amount of Rs 2000, they won’t be able to buy the toy. Perhaps, it will cost Rs 2200 by then. Help them understand the concept of inflation with other examples. For example, make them learn how the price of cake that you used to buy at Rs 500 couple of years ago, now costs over Rs 600. Once they learn this lesson, they will automatically implement lesson number four.
Before you go
Your children will only learn these money lessons when they see you make smart spending and saving choices. Before you preach, you should practice and master the lessons yourself. If you think you are not doing well in any of the above points, start working on it.
When it comes to teaching kids, you need to have patience. You cannot teach them these lessons overnight. It will require years of continuous effort. You need to stay focused and continue to instil the best money habits in your kids. These are going to serve them for a long.