Warren Buffett set up the Secret Millionaires Club as a financial literacy project to enable children develop the correct financial habits that would serve them well for the rest of their life.
Given that financial skills are crucial to navigating life, parents should teach their children about money at a very young age. This is all the more significant since parents are the dominant influence on their children’s financial behavior.
Let’s look at some ways in which children can be encouraged to understand the concepts of saving, budgeting and investing.
1) Inculcate the habit of saving
Young children understandably have trouble grasping the concept of savings. The best way to get them started is to have a piggy bank. All cash gifts given on festivals, occasions or birthdays can be accumulated here. The money can be counted periodically - every quarter seems doable.
Parents can add to it by rewarding their children monetarily for doing certain chores.
Alternatively, they can just add an equal amount to what has already been accumulated. For instance, if a child has saved Rs 500 in a quarter, the parent could add an equal amount – another Rs 500.
This money can then be utilized to buying a toy or something the child wants. It teaches the child goal setting (saving money specifically to buy something) and patience.
2) Engage your children in financial discussions
It won’t be a bad idea to involve older children when chalking out the family’s monthly finances. It could indeed be an effective tool to help them understand the importance of money and planning before spending. More often than not, kids learn about money management and develop their spending habit from parents. Hence, an open discussion with regards to tackling monthly expenses would help them understand the prudent way of spending money.
You could, in fact, sit down with your children and discuss the ways in which they could spend their pocket money. This will not only help them understand that they should plan their spending, but it will also ensure they don’t make unreasonable demands. This exercise will surely go a long way and assure that your child’s first paychecks don’t burn a hole in his pocket.
3) Teach them about value buying
An important aspect of spending is buying. While teaching your kids about money, you should discuss their spending choices. You must discuss where and on what he should be spending money. Introduce to them the idea of buying things that are necessary rather than spending all their pocket money on something that is not required. This could be well explained to your kid if you offer choices while buying things for them.
For instance, if your kid demands a toy and a book, don’t easily give in to both his demands. Tell him that with his pocket money, or rather, with your budget he can buy only one of the two. At the same time help him with his decision to select the best option.
4) Assign budgets
We all have budgets for managing our household and make every possible effort not to cross that. The same concept should be explained to the kids. They should be told to manage the entire week (or month) on the stipulated pocket money. So whether it is hanging out at a coffee shop or visiting KFC, they have to make do with their allowance.
This inculcates discipline and money management.
5) Talk about investing
Savings should eventually lead to investing. As the kids grow, you should introduce them to the concept of investing their savings and highlight the idea of how the money could grow through investments. The first step in this direction would be to encourage them to open a savings account and help them see and track their money grow. The money saved and the interest earned on it could come in handy in the long run to meet their financial requirements.
A version of this article appeared earlier.
