According to a recent study done by a teen-centric pocket money app, 96% of Indian parents feel that their kids lack the basic money management skills required to navigate the real world.
At the same time, the survey also found that more and more kids are keen on learning about money management and financial advancement, especially with the arrival of fascinating concepts of blockchain and cryptocurrency.
With so many new ways to learn, some reliable while others not so much; it has become easier than ever to ensure that your kids understand the importance of financial responsibility and long-term financially wise decisions.
But as hard as it is, teaching a child to be financially literate and financially wise is a parent’s responsibility, one that if not done properly can lead to dire consequences in the future. So here are a few ways you can set the grounds for your child’s financial future:
1. Be open about financial conversations
Growing up as a part of Indian culture, financial conversations are always excluded from the children of the house. Even though the intent is pure, it doesn’t do them any good in the future.
It’s true to a certain extent that children should not feel burdened by financial difficulties and it is the job of adults to handle that. But they must be aware of the financial situation at all points.
Shielding your kids from real-world conversations will prevent them from understanding the real world. Be open about financial conversations that happen in the house, include them wherever necessary, and take their opinion to understand their perspective of things.
This way you can arm them with the knowledge and confidence to handle difficult situations which they will eventually encounter at least once in their life.
2. Let them manage their shopping
When your kids are little and accompany you shopping, they will want something, maybe a chocolate or a toy or anything that has caught their attention. Most parents will get them the items that they can and if something is out of budget, they will say no and then start the tears, often followed by tantrums.
There is a very easy way to avoid this while teaching them how to budget. Whenever they come with you to shop, give them a small amount and ask them to buy whatever they can with that. They will automatically start prioritizing their needs.
If you keep doing this as they grow old, they will eventually understand their needs, wants, and desires. Making them in charge of their shopping, and allotting a budget is the simplest way to make them financially responsible from a young age.
3. Introduce the concept of savings, spending, and goals
Another concept to talk to them about is want, need, and desire. They need to understand their spending habits as soon as they can. Ask them to make financial goals for things they want and save up for the same. Help them track their spending & encourage them to save as early as possible.
4. Use the right words when talking about finances
The way we talk about money has a great impact on children’s perception of money and financial matters. When talking about finances, ensure that they understand it is a choice and money does not control us.
Rephrase your words that show responsible financial decisions are an act of choice and something to be proud of;
Instead of saying, “We don’t have money for that” or “That’s way too expensive” rephrase it to,
“We are prioritizing paying xyz bill” or “We would consider it if you found a better deal, but currently its value is not worth its price”.
This means that you have to carefully model financially wise behavior for them to learn from.
5. Teach them the basics of compounding and investing
Indeed, they will probably learn about compounding in school but for them to understand it in simple terms, you have to be their teacher. The correlation between compounding and investment is something that kids are generally taught poorly in school.
This is why it’s important to teach them about these small things by yourself. Just teaching them that their money can grow with time if they use it right can also promote smarter financial decisions in the future.
A well-rounded financial education will put them ahead of their peers.
6. Promote entrepreneurial behavior
No, we are not asking you to encourage child labor. But creating the confidence to find unique solutions and pushing them to think out of the box ideas to make money will build creativity and entrepreneurial spirit.
While tackling small day-to-day difficulties, ask them how they would tackle the issue, provide guidance wherever necessary and reward them whenever they add value to a situation or solve a problem with their ideas or recognize opportunities in unusual circumstances.
The most important thing in the journey of teaching your kids to be financially mature is to allow room for mistakes. Give them the freedom to make their own decisions and make mistakes when the stakes are low, instead of them making the same mistakes in adulthood when the stakes are much higher.
Read more: Zen And The Art Of Investing
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