When it comes to managing money, most people get to master it when they start earning and generating a source of income. But, when to spend and where to spend are something that we are taught in our childhood. We might have been our parents and other people saving money for the future and spending only what is needed. This simply implies that the money-related knowledge that is imparted to children plays a substantial role in setting a solid base in their minds about money and its management.
Some parents prefer to start early and teach the basics of finance to their children so that they can manage it wisely. As money is at the heart of almost everything around, it is necessary for children to gain knowledge about money. Also, as some children got opportunities to make money at a very early stage, this knowledge helps them in making the best out of money. As most children get pocket money to meet their little expenses, having financial knowledge is a must for them.
If you have children at home and you want them to be financially sound along with typical education, it is a good habit to teach them finance as early as possible. This would help them have a solid base at their back when it comes to managing money in all their future endeavors and also in their personal lives.
So, for your reference, below are some of the proven and most effective ways to impart knowledge of money to your children.
1. Include children in your family budget planning
This is surely a wonderful idea due to its high level of engagement. Moreover, your children would also love to be a part of it. As children have a habit of interfering with every adult thing, this kind of exposure would open their minds in regard to money. Tell them how you make the best possible use of your salary by allocating it to different goalposts. This way, they can learn how to manage money in a smart but useful way.
It's alright if your children are too little to fully engage. The idea here is simply to get comfortable discussing money as a family without shame or stress.
2. Lead by example
According to research conducted by the University of Cambridge, children's money habits are determined by the age of eight. You are being watched by little eyes. They'll notice if you put down plastic every time you go out to eat or to the grocery store. They will notice if you and your spouse are battling over money. Set a good example for them, and they will be much more inclined to follow it as they get older.
3. Stay away from impulsive buying
This age group understands how to capitalize on spontaneous purchases, especially when they are made with someone else's money. Instead of giving in, tell your youngster that they may pay for it with their hard-earned commission. However, advise your youngster to wait at least a day before purchasing anything worth more than Rs. 20. It will almost certainly be there tomorrow, and they will be able to make that financial decision with a clear head the following day.
4. Teach them the value of giving
As soon as they begin earning any money, make sure to educate them on the importance of contributing. They can choose a nearby temple, mosque or church, an NGO, or even a friend who could use a little assistance. They'll eventually realize that giving has an impact on the giver as much as on the recipients.
5. Open their savings account
This is one thing you shouldn’t miss. An essential component of every budget is saving for the future. Banks occasionally enable guardians to open kid-specific savings accounts in their names, allowing you and your child to co-manage the account.
As an alternative, you can think about a custodial account. Since this form of account places savings away until they are 18, kids won't have the same access to their money, but it can be a valuable alternative for teaching kids the significance of maintaining funds for the future.
6. Let them understand debit and credit
Your kids need to understand that whenever you use a credit card, you're actually borrowing money. Kids need to understand that using a credit card doesn't give you unlimited access to money and that you'll have to pay back any purchases you make (possibly plus interest).
Emphasize the significance of keeping your end of the bargain with your lenders by using credit sensibly. You can discuss the ways in which you've financed the acquisition of things like a car or a home. You could even describe what a credit report is and the significance of credit ratings. Teenagers in particular should be aware that when the time comes, having a good credit report will make it easier for them to rent an apartment.
7. Define expectations
Declare firmly that you'll keep to your list before you enter a store. Declaring this objective out loud will help keep everyone on the same page and prevent arguments as you pass the toy aisle.
8. Teach them about credit cards
Your child will start receiving credit card offers as soon as they become 18—especially once they start college. If you haven't explained why taking on debt is harmful, they'll end up using their credit cards just like everyone else. Keep in mind that you must choose the appropriate moment to impart these ideas to them.
9. Tell them about compound interest
We are aware of your thoughts. How on earth are your teenagers meant to become knowledgeable investors when you can't even convince them to brush their hair? It's best if your kid can begin investing as soon as possible. A magical concept is a compound interest! Early exposure to it will give your adolescent a jump start in preparing for the future.
10. Define the importance of savings
Use various examples of how savings help you fulfill your dreams at different times of life. Share them with your children in the form of engaging stories so that they can understand how savings can be helpful to them.