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Oct 30, 2019 | Source: AxisDirect-O-Nomics
The views and opinions expressed are of Mr. Arun Thukral, MD & CEO, Axis Securities.
Teaching healthy financial habits to your children at a young age will instill in them the value of managing their finances effectively throughout their life.
Raising a child is a tough job. While the joy of shaping and nurturing a life is immense, the responsibility it entails in terms of inculcating positive values and right beliefs is equally colossal. From a young age, we stress on sharpening the social, academic and extra-curricular skills of our children, leaving training in financial management skills for a later day. If we want our kids to be competent in handling their finances as adults, we need to start training them in money management from a young age.
The importance to educate next generation in key financial lessons has been recognized across the quarters. Financial sector players, particularly banks, have reiterated the importance of teaching kids about money management by launching innovative products. A key initiative in this direction is allowing children above 10 years to open a savings account. These minor-operated accounts can be managed by children with minimal/no supervision from parents. With defined withdrawal limits and various attractive benefits, these accounts are designed to impart confidence and a sense of responsibility amongst children. In a similar vein, pre-paid cards have also been launched for children which are linked to the mobile number of their parents. Parents can decide the amount of top-up on such cards which are then given to children along with the card pin code. While kids have the liberty to spend the money as they please, parents can monitor these spends through updates on their phone via card related apps.
To make learning about money a fun activity, you can incorporate these products into simple lessons that you can design to teach your kids about personal finance.
Right age for money lessons - Young minds are always curious and highly malleable. They are more receptive to experience new things and learn new concepts. You can link key financial lessons to fun activities for teaching healthy financial habits to your children. As per the age group of your child, you can start with simple financial lessons and then introduce more complicated concepts as they grow up. A handy guide for these lessons is given below:
Age Group |
Lessons |
3-5 years |
Good things come to those who are patient |
6-10 years |
Make the best use of what you have |
11-13 years |
Your efforts will take you closer to your goals |
14-16 years |
Early start means less stress in the long-run |
16-18 years |
Always pay attention to details |
It goes without saying that each child is unique and so is her/his family situation. To ensure that your kids imbibe the right financial habits, it is wise to use your discretion in deciding the best time to have financial talks. As an action repeated over a period of time becomes a habit; daily, practical exercise, in key financial concepts can help you to cultivate positive financial values in your child. Few examples are:
Patience is a virtue
Investors are often advised to be patient and have a long-term horizon for making the most of their investments. Being patient to excel in every sphere is an important lesson which we must teach our kids. A simple way to develop this habit is by spreading out their demand for toys, new clothes or a picnic over a period of time instead of instant gratification. When they throw a fit, explain to them that they have to wait for few things to happen and they will enjoy the benefit of their patience at the right time.
Earning money is difficult
Teach them the value of hard work, dignity of labor and importance of saving with one simple exercise -link their pocket money to household chores. Define the amount that would be given to them for each activity that they do. Few examples can be cleaning their room, filling water bottles, polishing their shoes, etc. Small remuneration can be linked to simple activities and this amount can be increased as the chores become difficult. Part of the money that they earn can be given to them as cash and part can be deposited in their saving accounts or topped-up on their pre-paid cards.
Live within your means
Allow them to indulge in discretionary spends only from their pocket money. Define spends, such as a McDonald meal or a new football, which they must buy from their pocket money. If in a particular month, they fall short of the amount they need to buy what they want, ask them to wait until next month for the same. If they are still persistent, you can introduce the concept of borrowing and lending by giving them pocket money in advance and deducting a certain amount from their next month’s allowance as interest.
Set clear goals
Ask them to define a big goal towards which they want to save. Be it a plane ticket for a holiday or a new bicycle, help them to plan for achieving these goals. Let them set a timeframe and calculate the amount that they would need to fulfill their goals. You can work out chores which they can do to accumulate the required amount of money. Certain incentives such as a bonus can be offered on completion of milestones, like on every accumulation 1000 rupees. This will keep them motivated and on track to achieve their goals.
Start early
Just like a head start in a race improves your chances of winning, starting the process of investing early-on improves your chances of accumulating wealth. This is because the magic of compounding kicks-in to make your money work for you. Encourage your kid to start a SIP with you every month from her/his pocket money. Every month credit a certain percentage of interest on their savings to help them understand the working of compounding.
Read the fine print
Doing a thorough research is important for making sound financial decisions. Plan grocery store trips for your kids. Ask them to read price and expiry date on a product before buying them. Teach them to compare the price and features of different options available and pick the right one. This exercise can be extended to teach them about budgeting by giving them a certain amount of money and a list of items that they must buy with that money.
Lead by example
Children pick up habits from their parents. For kids to imbibe healthy financial habits, it is important that parents show them good practices through their behavior. Few examples are:
• Avoid having fights on money matter in front of your children
• Make financial planning a family activity and encourage kids to share their views
• Show financial disciple
• Keep a healthy asset mix in your portfolio
Even if you can afford to create a financially comfortable future for your children, remember that they will not truly value this luxury without understanding the real value of money. Use these cues and make a fresh start this Children’s Day in grooming your child to be a financially responsible adult.
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AxisDirect-O-Nomics