Saturday, July 4, 2015

How would you teach your child to be a financially savvy adult?

This is a million dollar question - isnt it? 

All of us want our children to have a prosperous life and most of you would agree that financial wisdom plays a great part in that. You may leave a fortune of a million dollars for your son or daughter but they would need to manage that fortune in order to continue that lifestyle isnt it? 

Teaching children the importance of money can and should be done while they are still young.

Most parents are over protective of their kids and feel that exposure to money may spoil them. I on the contrary feel slightly otherwise. Yes, of course - if you give a 1000 rupee pocket money every week to a 10 year old, you are most certainly spoiling him but, if you give him a 50 rupee pocket money and encourage him to save a portion of it, not only would he learn the art of saving but also learn the value of money. 

Idea No. 1: Be Proactive - Dont wait for your child to ask you what money is. Teach them Learn about it. 

You need not wait until your kid is 5 or 6 years old and learns what money is from his/her friends at school. Children start understanding the concept of money as early as 3 years old. They learn how money is used by watching you go about your daily activities. You can involve them too. For example, you can let them observe while you are making a cash purchase or even sending them to the nearby convenience store to get a small item or better yet - allowing them to pay for a toy they want. 

Idea No. 2: Teach your Child the Art of Saving 

Anyone and I mean anyone can earn money but it takes a wise person to save and hold on to it. When your kid is 3 years old, gift him or her a Piggy Bank for their birthday. 

Teach them and encourage them to save whatever small amounts of money they could get their hands on. For ex: You could motivate them to clean their room or sort out their toys and reward them with a few coins for their hard work. Ask them to save it up in the piggy bank you gifted them and let them enjoy the activity. 

Most of the elders of our family especially the ones whose relationship titles start with "Grand" gift cash to children whenever its an auspicious day or their birthday or even if it is just Sunday. Teach your kids to save all or at least part of it into the piggy bank

Idea No. 3: Help them Understand the Value of Saving 

One way of helping children understand the concept of Saving better is by making them appreciate the fruits of their labor. Simply put, lets say your child asks you for a costly toy which probably you will give-in and buy after a couple of temper-tantrum sessions at the mall. Alternately you could explain them that buying this toy requires a lot of money and you could suggest that you would reward them by getting this toy if they could save X rupees. This would be an added motivation for them to be religious in this saving activity and understand how the monetary system works. 

If you and I want to purchase a Car or a Bike or something that costs more than a few hundred bucks, we usually plan for it. We set aside small amounts each month over a period of time and then buy it eventually. Why not let our children cultivate this as a habit? 

A word of caution here - Dont set unreasonable targets for your children. 
Asking them to save 5000 rupees in 2 months would demotivate them. Ask them to save lets say 200 rupees in 3 months or something along the lines that is more achievable. Yes, it would be tempting to actually give them that money right away but that would defeat the purpose. 

Idea No. 4: Open their Bank Account

Once your child is old enough to actually count money it is an indication that he/she is ready for their own bank account. Banks these days have special accounts dedicated to kids. You as the parent would of course need to be a Co-Owner/Custodian of the account until your child is about 15-18 years old (depending on the bank/country). They could get their own ATM Cards and could even operate the account by themselves if you teach them to do so. 

Banks in Western Countries offer Dedicated Service Counters for kids who want to transact on their bank accounts and even offer them a variety of gifts to motivate them to enjoy Banking and learn the financial system. 

Idea No. 5: Dont be Scared of Letting your Child Explore, Learn and Grow

Opening a Bank Account is just the first step towards making your child financially savvy. Set aside some day each month to open up your childs piggy bank. Help them count the money in their piggy banks, take them to the real bank and help them deposit the money into their account. Ask for statements of the account emailed to your house and let your child see the amount in their account grow every month. 

You can use this opportunity to also explain them how interest calculations work, how banks operate etc and impart a lot of financial wisdom. 

Getting a bank account for your kids enables you to teach them the importance of saving and financial management early in life. This will no doubt help them grow into adults who are more financially savvy. 

How did you like this article? If you have any comments or suggestions, do feel free to sound off in the comments section. 

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