Make your child financially smart at a young age!
One of the best childhood memories we have is collecting money in our “piggy banks” and breaking it to achieve our goals. This was a very good habit, however at that tender age we didn’t realise the value of money saved and would splurge it on something unnecessary. But still the saving habit was born. This is where the parents play their role. They need teach their children the fundamentals of finance. Parents start their kids off young in a lot of things such as sports, dance, music, etc, but where personal finance & the importance of money is concerned they take a back seat.
Every parent starts saving for their child’s goals since they are born. Why not involve the child for the same since it is for their own bright future. Looking at the current state of economy and the rising inflation every child needs to learn the right behavior about saving and spending. No child can naturally pick up the skill of investing or saving and so the parent needs to step up and enlighten them.
Making your child financially smart doesn’t meant teaching them about the complicated risk and return formulas or ratios, but practically educating them how to take care of their finances and help them be a financially successful adult. We at Fpguru.com have here by suggested some tips to be kept in mind when teaching your child financial basics.
Help your child earn money through rewards- Since your child doesn’t do a job or business they don’t have any kind of income. However to teach the importance of finance it is necessary to give kids a chance to practice with money. Help your child to earn this money by making them do some task, for example reward them if they do well in their class test, win a completion or help you do some house work, you can also pay them extra if they have performed extremely well. This will teach them that money doesn’t come easily and one needs to work hard for the same.
S for saving- Once your child has earned a few bucks teach him that this is not to be spent randomly but most of it needs to be saved to achieve something they desire & need. Thus by setting a goal they will not only get a better understanding of value of money but it will also reinforce the value of saving. Also only saving will help them have money to invest. If your child is in his teens explain them the magic of compounding and invest their saving in a good long term investment instrument which will help them in the future.
Help your child to make a budget and follow it regularly- To start with you can explain your child how a household budget is been followed every month. If you provide pocket money to your child it’s time to educate him on first having a budget. One needs to keep a check on the expenses made by them. Seeing the plan may encourage them to save more towards their goals and motivated them to follow their budget. Again, this is a great exercise in applicable math. You’ll be surprised that soon they will have savings in their pocket money too!
Explain to your child the difference between Needs, Wants & Luxuries- Your child may demand an expensive laptop or a video game but he may not be aware about the price of the same. Thus it is the parent’s duty to explain them whether it is genuinely needed or just a want. Help your child jot down their expenses and point out the ones which are irrelevant and can be avoided, this will help them save more. In our society children get their extra income from their other family member like grandparents, uncles, aunts etc. as cash gifts during many occasions. This extra income should not be splurged on an unnecessary item but utilised on something the child desires to buy and is needful.
Teaching your child the importance of financial management empowers them to make the right financial decisions. It is not only how much money one makes but how well one manages it that determines financial freedom. A child may make mistakes or might get stubborn on buying something not required, but one should know that a child will learn only from their mistakes.
Most importantly lead your children by example. They look at their parents & imitate them. This is especially true at a young age. If you set an example they too will follow it.
We at Fpguru.com have always used the proverb "Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime." You can do a great job of taking care of your children simply fulfilling their financial needs or you can invest the time and effort into teaching them how to manage their own finances. By educating your child and making him smart financially from a young age you will ensure he/she grows into a financially secure adult.
By Namrata Shah.
The writer is working with FpGuru.com as a Financial planner.
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