Although fiscal prudence is one of the most indispensable lessons of adulthood, it is surprising that the current pedagogy doesn’t incorporate it. It all boils down to parents leading their children by example or teaching financial literacy to their children early on. Offering them age-appropriate money lessons is an excellent opportunity to influence their ability to manage finances in the real world – from student loans to mortgages.
Some argue that an allowance is an opportunity to teach children the cycle of money management, while others argue that one shouldn’t be paying children for household chores they should be doing anyway. While the on-going debate of giving children allowances is an interesting one, we have reached a reasonable consensus that finds its middle ground in giving a small allowance each week that is not connected to household chores and responsibilities. Coming up with a weekly ‘extra’ chore to earn money, like washing the windows or weeding the garden will assist children to make smarter decisions with their money.
A fun way to indulge in the importance of delegating money to different causes is to create two jars – each labelled “Saving” or “Sharing.” Every time your child receives money, divide the money equally between the two jars. Money in the sharing jar can go to someone who needs it. The saving jar should be spared for purchasing items with the purpose to buy something in the long run such as a much-anticipated toy. Make sure it is a practical expense and set them up for success. If your child has an expensive goal, come up with a relevant program to help him reach it in a reasonable timeframe.
3. Investment through Entrepreneurship
There is nothing more children enjoy than playing roles that are conventionally designated for adults. It helps kids feel important and shows them that they are capable of being responsible. A great way to begin is to use money when they are learning to count. Let your child carry out transactions when you’re at the grocery store. It is valuable for children to learn that they need to work in order to have better things in life. It’s a good idea to give your children an entrepreneurial bent from an early age. Motivate your children to start their own micro-business, like a lemonade stand. This gives them the opportunity to see that, in order to earn money, you have to invest money. Try “selling” your children some of the basic resources at a low price, like charging two rupees for cups and five rupees for a litre of lemonade, and then, get them to sell the lemonade to earn a return on their business.
4. Realities of Finances
Your children may know how to solve complex differential equations but something as basic as paying electricity or phone bills eludes them. Start by teaching them how adult finances like income, budgeting and saving up for retirement actually work. Introduce them to bills that are relevant to them, like the internet bill or the phone bill and emphasize the importance of paying them on time for enjoying their continued service. Another approach is to share your monthly family budget explaining them the delegation of money to various purposes like entertainment, college tuition etc. This big picture shows children that in order to build any sort of strong financial future, the money spent is always less than the money earned.
5. Wants vs Needs
Establishing boundaries between “needs” and “wants” is perhaps the most essential lesson for spending money wisely. Categorize food-related commodities as “needs”; on the other hand, something like expensive shoes that you saw your friend wearing, as “wants” that can be curbed. This jealousy is more visible among kids than in adults. The impact of which drives children to be increasingly materialistic. Perhaps making them believe that the only way to feel worthy is when they’re wearing the most expensive clothes at school. Knowing to differentiate between wants and needs is what helps them overcome inferiority complexes stemming from a materialistic lifestyle and inculcates fiscal prudence at a young age.
By letting them learn from their mistakes and leading them through examples set by you, children learn to be financially responsible and learn to effectively manage money.