Saving habit is most important part of our life. This is known as financial discipline or financial literacy. If you look at our earlier generations lifestyle, savings are very closely associated with their daily life. They had considered savings as the most important aspect of life and it helps them when they reach the old age. However, with the modern economics and globalization, young generation is forced to spend more money for their daily life and one cannot control them self if the environment itself promoting the lavish life.
If you don’t have good savings habit, then it will not help you in the later stage of your life. Anything you learn from childhood will stick with you forever. That is the reason why we should teach good habits at child age. Financial discipline and independence is one of the most important lesson which this generation parents has to teach their kids. This article explores few tips how one can help their children learn the basics of finance. If you find this article useful, please write your comments.
Why Financial Literacy for Children?
Financial Literacy is part of education in most of the developed countries. In India, it is not yet introduced in the schools, but we can expect it in the very near future. Indian govt. has announced that a subject will be introduced in the schools to teach the kids about personal finance. Like India, most of the countries too planning to formulate the financial literacy as part of the curriculum. India’s level on literacy is at pathetic and need more awareness among the people. This has to be started from the govt. and all the banks has to allocate some money for the financial literacy. This will avoid any loss or misconception about the finance when they grownup. The following sections of this article for the parents how they can bring the financial discipline for their kids.
Age Group 3-6
At this age parents has to help them start the savings habit. Kids don’t know anything about money and its value at this age. It is fun for them to collect the money and keep it with them. To start with, buy them hundial (Piggy Bank) and let them collect money till it is full. Note that, it is only for bringing the savings habit. It is not necessary that you have to use hundial, you can implement your own strategy to implement this technique. Also it is no way related to how much rich you are, for child’s view, every thing is same.
- Parents has to encourage them for their small savings in the piggy bank.
- Don’t ever tell them that your savings are small and it will hurt them.
- Teach them that the savings has to be utilized for the good cause and it is for them like buying toys, school bag, shoes, etc. It will excite them when they buy with their own money.
- Give them small amount every month for their savings. Also ask them how much you have in your account and tell them to count.
- This is old technique, but most powerful at the young age. Make it more transparent with your kids about spending and the level goes down when they spend.
Age Group 6-11
Open Bank Account: At this age parents can open a bank account on their kids name. All the banks allow parents to open bank account for the minor child. This would help them to understand the bank process and provides confidence. Whenever you go to the bank, take them with you and explain them what you are doing. Kids are great observers, they will learn what ever parents are doing.
Pocket Money: Give your kids pocket money for their spending. This age parents can teach the kids to save the surplus money for the future expenses. Also make them understand the maths and money is very closely related. Do some calculations on savings and spending.
Parents can encourage kids to buy things on their own. It is with guidance from the parents. You tell them that, when your kid spending some money they have to inform the parents. This helps them to bring discipline on their spending.
Age Group 11-15
Power of Investing: This is the age where you have to teach your kid about the investment. Till this time, your kid knows that money is only for buying things. They never thought of how to earn money and grow them. Here you have to explain them the power of compounding and advantage of investing from the early stage. Give them nice examples and make them understand that how much risk in future if one not savings money on right time.
Parents can explain about the investment options and give them freedom to choose what they like.
Debit Card: When your child is 12 years, teach them about debit card and how it works. You can give them one debit card with cap on spending limit.
Age Group 15-18
- This is the age when you child will be interested to do things independently. Also this is the most important part of the journey. Till this age you have taught great things about the finance and they are able to maintain under your guidance, remember that these are done only for enable them to take independent decisions.
- Allow them to take the investment decisions and evaluate that if that is correct. But don’t try to be over smart. For your child what they are doing is correct and sensible. If you find any mistake on their decisions, sit with them and try to explain them why it is not correct.
- Teach them to maintain their accounts. Give them exposure to netbanking, mobile banking and various advanced medium for doing the transactions. (See IMPS – Mobile Payment Service)
Child learn from examples. If you team them something, you have to follow the process. Otherwise you will set an bad example for them, your teaching won’t be effective. If you follow what you are preaching them, they will follow you without any hesitation. Try it once, you will be amazed how they try to follow their parents. It is not only for the finance, all other things they feel parents has to be an example. Hope the above ideas would be useful for the parents who have not started these habits to their kids. Let me know if you like these tricks, or suggest some good ideas.
I found below two articles very much relevant to the financial literacy at the young stage. It will be useful if you read these articles.