Un-breaking the Piggy Bank: Teaching your kids to manage finances!
Money is undoubtedly an indispensable asset for leading a comfortable life. More importantly, the lack of money or savings could prove to be a bigger problem as one gets older and has nothing to fall back on for a rainy day. Educating children about managing finances is therefore a valuable lesson that parents could impart in various ways, be it a kindergartner or a school-goer.
Teaching the lesson of delayed gratification to your children at an early age is a good way to start off with their education about the value of money and saving. Set up different piggy banks or jars for spending, saving and sharing, wherein the one labelled ‘Spending’ is used when your children want to make inexpensive, small purchases, ‘Savings’ being more long-term, as the name suggests, for purchases or occasions which are more expensive than usual, and ‘Sharing’ being the money used for contributing to someone else’s expenses, as a lesson in giving. Subsequent discussions about their choices will enable you to understand your children’s thinking and their approach to spending money. It will also provide you with an opportunity to offer your insights to them about how they can maximize the purchasing power of their savings.
Delayed gratification is often the most difficult lesson to master even for adults, so a child who is exposed to this line of thinking at an early age is likely to reap its benefits by managing his or her finances better as an adult. Encourage your child to set small short-term and long-term financial goals, help them keep track of it over time, and set activities that can help them earn this allowance from you along with a set timeline for the same. These activities should ideally be oriented towards the child’s overall development, be it academic or extra-curricular in nature, or something related to household chores or family bonding. Needless to add, a bit of creative strategy on the part of parents in this regard would go a long way in keeping a child motivated and focused on his or her goals.
For example, instead of focusing on money right from the beginning, one could instead follow an incentive-based system, wherein the child receives benefits for his or her completion of weekly goals, in the form of small gifts or being rewarded with extra time for doing something that he or she enjoys, like watching movies or TV, or playing games.
At a later stage, after introducing an allowance system with cash, you could also provide further incentives for reaching targets for savings by providing rewards as a token of appreciation of your child’s efforts. These rewards could be in the form of an extra contribution of money from your end or anything else of your choice. Assisting your child in prioritizing his or her goals is also an important lesson in managing finances, as it would help them chart out their strategies for saving accordingly.
As your children gets older and become more comfortable with handling and saving money, you could consider opening a savings account for them, and educate them about how the banking system works at a basic level as well as the kind of investments they could make in the future in simplified, age-appropriate terms. You could even introduce them to stock trading at a small-scale by buying them a few shares of a company familiar to them, with the aim of teaching them how to recognize trading patterns.
You can also make them understand the value of making good financial decisions by giving them pointers for finding a good deal for the items they are saving up for. For instance, since most items are available online, asking your children to look for the best deal online based on various parameters as applicable to the item such as pricing, durability, utility, etc., would be another means of educating them about the value of money.
Lastly, children learn best by example, so observing their parents doing something is likely to leave a much stronger impression than just being instructed to do so themselves. Involving your child in making simple financial decisions for the household with you, and eventually, keeping them informed regarding your saving plans and investments for the future would be a source of inspiration for them to follow your lead. Money is often a tricky thing to handle even in adulthood, so teaching your child how to manage his or her finances is likely to be one of the best life lessons you could pass on to them. As the adage goes, the art is not in making money, but in keeping it.
