“Teaching kids to count is fine, but teaching them what counts is best.” ~ Bob Talbert
One of my favourite childhood memories is shopping with my father. He would give me a set amount of money to spend and gently guide me on how to “stretch” my buck. This is a lesson I have used over and over in my life. I have also tried to instil these same values into my children’s lives, which in today’s world is not always easy. Indians today are transforming into a want now and pay later culture with the easy access and high usage of credit cards and personal loans. As parents, we need to take a moment to teach our children about being financially smart. It is a lesson that they cannot afford to miss.
The Basics – Wants versus Needs
My nine year old son came home the other day and told me one of his friends has a cell phone and asked me when he was getting his. He was not being demanding or arrogant, he sincerely thought that at X age you get a cell phone, like a rite of passage. For kids today, it is easy to get caught up in the latest gadget or toy and there is some pretty snazzy stuff out there to catch your attention, for both parents and kids!
As parents, we need to help our children understand that life goes on without fancy shoes, designer accessories and cool gadgets. Having them understand the very basics of life such as food, shelter, etc. will help them prioritise their financial needs. So, how do we go about doing this…the answer is simple, budgeting.
Budgeting – To Have or Not To Have
Creating a budget with your kids is easier than you think. Kids are eager to learn and if you show enthusiasm and excitement about budgeting, so will they. Creating age appropriate budgets will make a difference in how well your child manages their finances. For example, you would not give a five year old the same budget as a ten or fifteen year old. Keep your child’s budget simple and user friendly to encourage continued use. Using bright colours and visual aids, such as graphs and pies will help keep a child’s attention. Keep in mind this is your child’s budget and you should ask them what is important financial to them. You might be pleasantly surprised by their answers.
While budgeting with your child, you can use this opportunity to go back over the basics and differentiate between what is ‘really’ important in life, compared to what they ‘really’ want. You can help them see that wants change while needs, for the most part, stay the same.
Educating them in wants verses needs will give them an advantage as an adult. Not only will they be financially smarter they will be more likely to make wiser decisions in other areas of their lives.
Setting Goals – Getting there is half the fun
As your child is budgeting, help them create a goal to save towards. At first start off small, making sure it is an item that is easily attainable. Remember the idea is to make them financially aware and achieving a financial goal is a great lesson in the importance of money. In the beginning, goals can consist of a new toy, movie or a night at their favourite restaurant. In time, your child will be ready for bigger and more long-term goals. When they have enough money saved, let them carry the money and pay for the “event”. After all, they worked hard to have their ‘investment’ payoff.
A few pointers, as your child is learning to budget and is working towards their goal, reward them with little ‘extras’ along the way, encourage them with kind words and excitement at each milestone, and lastly, give them opportunities to earn. A few examples might be, helping with household chores, cleaning out the car, playing with a younger sibling or neighbour child, etc. This will keep them motivated and focused on achieving the end goal!
Bank on It
Now that your kids are budgeting and earning money, it is time to put it in the bank. The best way for your child to learn about interest, ‘growing’ money, and how financial institutions work is by actual hands on experience. Opt for a joint account so you can oversee and advise your child if they go off track.
Another great option available to your child is online investment sites that are designed for kids. Your child can learn about stocks, mutual funds, read articles and reviews that are written for kids by kids, and invest and track their money. Can you imagine what a Retirement Corpus started at the age of nine will look like at age 55?
Raising financially smart kids definitely has its rewards!
A Family Affair
Include your children in family finances. Entrust them with the responsibilities of dropping off cheques, paying for the milk, newspaper, maid and other household bills. If your child is young, take them with you as you do your financial errands.
Also, tell your kids if you and your spouse are saving for something special that the whole family will be using, like a new car, furniture, vacation, etc. You will be amazed at how excited your child will be to help reach this financial goal.
Go over your monthly cell phone bill with your child to show them that they do indeed cost money. It isn’t as easy as mom and dad just giving them a cell phone. Show them the difference between prepaid phones and regular cell phone bills. Your child will start to understand the value of money.
By including your child in family finances, it is a good experience in working together as a team and shows them that life is full of responsibilities. By seeing mom and dad save towards a goal, it will be easier for them.
Attitudes That Add Up
Like adults, each child has a unique personality in regards to how they view money. I will use the example of my own children to illustrate this point.
My daughter is a saver by nature. If I give her Rs 100, within an hour she will have Rs 150. The idea of saving money just comes naturally to her. She knows how much she has in her wallet, what she has bought and when, she keeps her receipts and works towards goals without much need for encouragement.
My son on the other hand is quite the opposite. If you give him a Rs 10 note and it makes it into his wallet, my husband and I count it as a small miracle. He is eager to help anyone financially and always has big plans on opening a shop, making TONS of money and buying the latest gadget. When he does save towards a goal, it takes a lot of encouragement and praise for him to stay focused.
Both children are wonderful and special in their own way, but need individual attention in regards to their spending, saving and investment tendencies. By identifying your child’s ‘money personality’ early, you can break bad money habits before they begin, guide them into prosperity and counsel them into understanding their financial needs. As they grow into adults, this will make them wiser and more confident in their financial choices regardless of their ‘money personality’.
At the end of the day
Of course the best educator is when we teach by example. So take a look at your own financial life and see where you are strong and where you have need of financial support. Consult the advice of a certified financial advisor or use InvestmentYogi’s Online Financial Planner.
If your children see you budgeting, investing and seeking counselling, they will be more likely to take do the same.