Smart tips for teaching children money management

As a parent, while you endeavour to provide the best to your children, making them understand the value of hard-earned money is equally important. Children need to realise that money does not grow on trees; you need to earn it, save and invest it sensibly so that it grows and generates wealth to continue living comfortably.

“The single most powerful asset we all have is our mind. If it is trained well, it can create enormous wealth in what seems to be an instant.” – Robert Kiyosaki (a celebrated investor and author)

As a responsible parent, you got to persistently impart money management lessons smartly to your child, so that in the long run it cultivates the good habit of saving and makes him/her and handle money deftly. One of the best and smart ways to impart money management lessons to children is allowing them to go hands-on and inculcate learning through experience.

This Children’s Day teach your children the importance of savings. Here’s how you could go about it…

• Introduce them to a few games associated with money such as Monopoly, Game of Life (similar to monopoly), Cashflow (inspired by Robert Kiyosaki’s Rich Dad, Poor Dad teaches how to be in better control of your finances), Payday (teaches how manage your monthly budget), etc, that can impart a money management lessons if shepherded prudently.

[Also Read: Secure Your Child's Future]

• Introduce children to the concept of a piggy bank initially and then take it further from there. As your child grows ups and starts getting pocket money, open a savings bank account in his/her name and park the pocket money in it. Explain the rationale, and set your terms and conditions as a parent.

A savings bank account for children will introduce them to the concept of interest on savings, power of compounding, basics banking transactions, help them recognise the nuances of personal finance, encourage them to save and invest productively, and ultimately aid them in financial planning.

For children below 18 years of age, consider Axis Bank’s Future Star Savings Account.

Additionally to secure their future, encourage them to save via FD/RD – or you could consider opening an Axis EXPRESS FD an instant FD that can be opened anytime, anywhere simply using PAN and Aadhaar details.

• Engage your children and spouse when you draw your household budget. Children learn a lot by listening and observing and they are fast learners. In fact, they may even provide you with worthy insights as they evolve and grow over time.

In the budgeting exercise, set rewards when they save or contribute positively towards the household budget. This will not only prevent them from being reckless spendthrifts but even enhance their mathematical and money management skills.

• Introduce your children to the practice of delayed gratification and encourage them to work for things they want and aspire for. Explain that making plans and getting them down on paper gives us a road map to achieve goals.

When they have certain materialistic demands, help them distinguish between ‘Needs’ and ‘Wants’. ‘Needs’ are necessities one cannot wish away, while ‘Wants’ make life more comfortable, but can wait. So, say you are out shopping and your child is nudging you to buy certain thing/s, don’t give in to his/her demand outright; ask your child to assess if it is a ‘need’ or a ‘want’ and explain to your child in a light-hearted manner using the correct analogy about saving for it to purchase it.

For your high school children, setting financial goals into short-term, medium-term, and long-term will help them understand how to prioritise. Buying a gadget, cycle, expensive clothes, shoes, etc–the shorter goals –– encourage them to save a certain portion of their pocket money, instead of fulfilling their materialistic demand/s upfront. For the longer goals (buying a bike, a foreign vacation, etc) and the vital ones such as their higher education, engage them in sensible money talk.

Doing this may help children distinguish between needs and wants well, prioritise financial goals, start understanding the value of every comfort, and luxury that you bring into their lives, and eventually sensibly accomplish financial goals as they grow up.

• Create awareness on how inflation erodes the purchasing power of hard-earned money. Educate them on how to calculate the approximate future value of the things they aspire, the rising costs, and ways to accomplish the vision and dreams they have for themselves.
• When you are giving teenagers an add-on credit card, first take them through how the credit card bill works and the perils of excessive usage of a credit card. Explain what their responsibility will be about owning an add-on credit card, in case of extravagant, impulsive spending or emergencies. Similarly, apprise them about the offers on their cards, so that they save (earn rewards points/cash-backs/discounts) whenever they swipe the card.
• And last but not the least, foster the art of giving and be role model to your child. Practice what you preach as a parent. Ensure you are setting the right example in your personal finances while you educate them on money matter.

Unless you motivate your children to save and teach them the value of money from childhood, they will probably never understand the importance of saving and make a lot of financial mistakes when they grow up.

Teaching children how to manage money is one of the best things you as a parent can do to prepare them for financial independence in the real world.

Thus, consciously impart the right financial education to your children at the right age, so that they don't commit serious mistakes. The most important skill in the art of money management is being able to make the right financial decisions when they grow up. So, be a role model for your children.

Developing money management skills can make your children financially independent once they grow up. Ultimately, it will serve in the interest of the family’s financial wellbeing.

Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm. Axis Bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.