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Make your child financially smart

We, as parents, teach our children a lot about good manners, human values, morals and ethics, social etiquette etc. At school too they have subjects such as moral science and value education. But when it comes to money and finance, we generally feel that they are too young for it.  

However, money and finance is a part and parcel of our lives. And just as there is good and bad behaviour, there is also good and bad financial conduct. 


Therefore, we need to educate our children about the basics of money and money management such as budgeting, saving, investing...and not the least spending...from the early years. The good financial habits have to be inculcated from childhood.

Moreover, today children are big spenders – games, mobiles, movies, dresses, birthday parties, presents, etc. cost a lot. Hence, it is important that they learn to appreciate the value of money.


1.  What is ‘money’ all about
The first step is to create awareness about money. We need to explain our child the concept of money. 


Parents go to work to earn money. This money is kept in the banks for safety. When we buy anything from the market such as toys, dresses, food etc. we have to pay money. Even for going to school we have to pay fees. When we travel say in a taxi or a train, again we have to pay for the tickets.

2. Give them a monthly allowance
Once the children are old enough to understand the concept of money, start by giving them a monthly allowance. It is, however, important that the decision, whether to spend or save or on which items to spend, should entirely be of the child. This will get the child more interested and also feel responsible. Let them make mistakes. This is the best way to learn. 


Since the purpose of the allowance is to teach financial discipline, do not give any extra allowance or if he has exhausted his allowance do not give any advance. Similarly, on your part, pay the allowance on time. Do not delay or make them remind you.

3. Encourage saving and open a Bank account
Saving is one of the earliest financial lessons to be taught. Get a piggy bank and make it a habit to give your child a 5-rupee coin every day to put in it. When the piggy bank is full, take out all the money. Open a separate bank account for your child with a passbook and chequebook. Deposit the amount saved in the piggy bank into their account. Take the child to the bank and let him enjoy the experience.

When you start the monthly allowance, encourage your child to save a portion of the same. As a financial discipline, ask your child to save the money he receives as birthday gifts etc. It will make savings more fun and motivated if you link it to they buying something big from the accumulated amount say a bicycle, a doll set, Playstation, cricket kit etc.


4. Budgeting
Budgeting is another important lesson for the child to learn. The resources will always be less than our desires and wants. Therefore, it is important to learn to prioritize our needs / expenses. To begin with, let them make a budget of the allowance they get. Let her / him make a list of what s/he wants and then decide what all is possible within the allowance. Over time, s/he will learn to distinguish between her / his ‘wants’ and ‘needs’. Remember that you would be doing a great disservice to your child if you meet all their demands.

Together with saving habits, budgeting will help him to plan for his future purchases, which may not be possible in a single allowance. He will also start appreciating the fact that money resources are not infinite and need to be judiciously used. It will also cut down the impulse buying and wasteful expenditure.

5. Investing
As your child grows up you need to explain the concept of investing and risk. What is the purpose of investing? What are the broad categories of investment options? What kind of risk they carry? What study or research needs to be done before investing? A few simple articles on investing would be quite helpful. And you could contribute some amount to enable them to make a few actual investments. Also, caution them against various kinds of common frauds.


6. Handle peer group pressure positively 
Peer group pressure is a situation that every parent encounters. Your child always wants something his/her friend has. However, you may be against it because either you can’t afford it or even if you can you don’t want to spoil your child by giving him/her everything he/she wants. Alternatively, your child may be better-off among his/her friend-circle and may become arrogant and develop superiority complex. Parents need to handle both these situations with patience.


7. Reward good financial behaviour
Just as we reward good performance at school, it is equally important to reward good financial behaviour. We need to appreciate and applaud our child. If the child has been consistent in meeting the rules laid down for ‘saving’ and ‘spending’, we must praise the efforts. We could take him out for a movie or buy a gift. Or even give a performance incentive, just as we get the same from our company.

8. Be a good example
Parents are a role model for their children. Your child too would pick-up a lot of your habits. This is true of money-habits too. It will be difficult for you to make your child appreciate the benefits of savings if you yourself are a reckless spender. Your attitudes and beliefs about money and your behaviour in money situations will shape a lot of your child’s money-attitude. Therefore, make sure that your lessons to your child are consistent with your own actions.

Good financial management attitude and skills will benefit the child throughout his life. It is one of the best gifts we can give them.


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