Teach money skills to your kids
Technology and your own behaviour play key roles in inculcating good financial habits in children.
Instead of buying assets and hoarding money to secure your child’s financial future, just inculcate good money habits in them. This will help them manage their finances when they grow up.
Budgeting: Teaching the child how to manage money at a young age will instil the discipline to live within one’s means. So give him pocket money and let him decide what to do with it. The purpose is to make the child keep tabs on the inflow and outflow of money, while learning the importance of saving and spending right. Don’t frame rules on its usage, but insert a casual remark about careful spending or how saving a little amount can help buy a coveted toy later.
Trust the child, let him take his own decisions so that he understands how best he can utilise and make the money last.
Making & reaching goals: It’s a skill that is critical to achieving major financial milestones later in life. So if a child is keen to buy something, make him do it by setting it up as a goal. Let him figure out how much money he can save each month and then calculate the time it will take to amass the required sum. Remember, however, not to be strict about it. “Parents should try to contribute to the shortfall, but the child must understand the sacrifice involved in the process of achieving goals,” advises Jayant Pai, CFP & Head, Marketing, PPFAS. “Make sure that it is a time-bound exercise and has tangible rewards at the end of it,” he adds.
Making money grow: This is a skill that is typically given a miss by most parents till the child is an adult. It is, however, a good idea to explain to the child how money can grow at a different pace depending on the avenue in which you invest it. As a simple exercise, have the child put the money in a piggy bank and show how it remains the same after, say, six months. Then put it in a bank account and reveal how it has grown during the same period. As the child grows, list out various investing avenues, spelling out not only the likely returns, but also the pros and cons of each. Of course, you need to brush up your own knowledge of financial markets before you do this.
Transactions & frauds: Many experts contend that instead of financial concepts, kids should be made to excel in maths. Besides the transactions, kids also need to be cautioned about how they can be cheated. The chances of being conned reduces if they are good in maths. As they grow up, they should be told about the bigger frauds and scams.
Raising kids’ money quotient
Money games: Kidzania, an educational theme park teaches kids about the importance of earning and spending. The best part is that the child doesn’t realize he is learning as he plays the games.
ATM usage: Take him along when you go to the ATM. Explain not only the procedure and working of the machine, but also the security precautions that should be taken.
Money apps: Introduce the child to complex financial concepts like planning his expenses or meeting financial goals. You can also expose the kid to the concept of simple money apps.
Online transactions: When child is in 12 or more, allow him to conduct simple online transactions such as order food, book movie tickets or online cabs.
Banking procedures: Grown up children should be familiar with all banking operations, be it reading online bank statements or ATM withdrawals and the security measures to follow.
(Originally published on 14 Nov, 2016)
Influencing a teen’s financial behaviour
Guide your child’s money decisions as she prepares for higher education.
Education loans, scholarships & funding
Talk to her about how her higher education will be funded, especially if the child wants to go abroad. Will you shoulder the burden or will it be partially funded through education loans, scholarships and part-time jobs? Don’t jeopardise your retirement to fund the kid’s education. Find out if she will need to take up a job while studying, or will she be able to earn a full or partial scholarship to fund her education.
Handling technology
If the child is moving to another city, she should be familiar with banking operations, be it reading online bank statements, making online transactions or ATM withdrawals. She should be able to conduct online transactions. To avoid identity theft, she must know the security measures and the precautions to take while operating her account.
Peer pressure on spending
Tell the child about the perils of peer pressure and herd mentality while spending. It’s also crucial to abstain from lending to friends. Split the cost, be it for eating or sharing a cab, never give your cards to friends, and don’t share any passwords either.
Saving & investing
The saving habit should be started much earlier because it can go a long way in funding or supporting the child if he wants to go abroad for studies. This is also the time when she should be introduced to online investing avenues, tax filing, purchase of insurance, among others, even though she may not need these immediately.
Maintaining a budget
This is the root of all financial problems once the child starts living alone and managing his money. She must get into the habit of maintaining a budget much before she leaves home. This will make her accountable for her actions, help her learn the art of handling money without running out of it before the month-end, and being forced to borrow.
(Originally published on 13 Nov, 2017)
Don’t do this in front of kids
These bad habits may send the wrong message to your kids or, worse, upset their financial future.
Fight about money
It’s normal to argue about money, but don’t make it a habit, and never in front of kids. Children exposed to constant fights about money are more likely to have financial problems later. When money is seen as a source of constant anxiety and aggression, it breeds poor money habits.
How to avoid it: Set aside a time when kids are away to discuss money issues. Also , instead of a blame game, work as a team.
Compare with others
If you have relatives or friends who are better off than you, don’t express envy or unhappiness before kids. It teaches them to measure success through material things and sets them off on a constant struggle to be at the top.
How to avoid it: Besides the simple solution of not talking about others’ wealth, stress on the need to improve as a person instead of focusing constantly on finances.
Act lazy
If you put off paying your bills or even forget doing so on occasion, delay filing your tax returns, avoid paperwork or feel lazy about making investments, you are telling your kids that these are not important.
How to avoid it: Fix a day of the month to pay bills, set up ECS mandates for automatic deduction of credit card bills, take professional help and set up alarms to get paperwork done.
Be impulsive
If you buy things randomly or pick whatever your kid demands while you are shopping, you are sending the signal that gratification should not delayed and budgets are not important. This may make them careless spenders.
How to avoid i
t: Don’t buy something the moment you like it. Wait for a couple of days or a week, and if you still think you need it and it’s not upsetting your budget, buy it. This will teach the kids to be more organised about his own finances.
(Originally published on 14 Nov, 2016)
