Let this blog find
you taking full ownership of your finances!
In our generation
(people born around 1970s)! there was generally limited supply of money &
information. These days there is an overload. What is available to kids is
totally different order. We had limited or no home delivery options, limited
housekeeping support. So as kids we many times were asked to go buy some
groceries, milk etc, come back & return the balance. I notice that this is
quite absent in current times of mall shopping, home delivery etc. This
deprives the kids an experience of knowing “aatey daal ka bhav” (what things
really cost?). When we ask teenagers in our workshop, on what they think is the
cost of their lifestyle, they rarely have any idea. Their guesses are way off
the mark. They also have very little idea of how their household is financed.
In our search for
some effective ways to educate children on finance at an early age, we came
across a useful article on www.jagoinvestor.com. I am reproducing
the entire article here for your benefit.
You can click on the title to go to the article on their blog.
Do you want your children to be
smart when it comes to Finance? Don’t you want them to learn all the things,
which you’re learning today, from this blog & other resources? And that
they don’t repeat the mistakes, we made in our lives?
Financial Education for Children is as important as their
regular education. Sadly, we do not have in our
school curriculum. However, you can start teaching your children, the basics of
money, so that they become, more aware, more responsible and think in a better
way about finance. It’ll not just help your children, but even you as a parent
in many ways. Here, I present 9 things to teach your children.
How to save
Most kids today are indulged, like
never before. All they do, is spend. The money mostly comes from one of the
parents. The kid asks you for a 100 bucks to buy the latest thingamajig, you
question them why, they answer you, and you give them the money. This
generally, makes them believe that once they give you a “good enough” reason,
the money’s in the bank (or their grubby li’l hands). You need to make sure,
that kids understand how you save money. This will happen only, when they
themselves, understand how to save money. Hence, encourage
savings.
Let them save
some money for their little goals (even big
ones). If your kid wants to buy something, which you think can wait, encourage
them to save towards its purchase. Whenever you give them some money for
anything, ask them to save 25% of it for that goal. Apart from this, you can
give them some small amount weekly to save for that goal directly. Please buy a
piggy bank for your children. You can buy a fancy one or the clay one we had in
our days It works!
How to keep track of money
You should teach your kids where the
money at home comes from, where it goes and how much is saved. I’d ask them to
maintain a simple table where they can write how much money they received,
& when, from whom, & where it was spent. These 4–5 things are is good
enough for a small child to start with. If you have a computer at home,
you can make an excel sheet and ask your kid to maintain the account, while
making sure, that things are very simple for the kid to understand. Don’t
overdo it
Once they start doing this exercise,
they’ll gain awareness of where they spend their money & to what extent.
You can sit with them each quarter, and review the sheet. Don’t try to point
what’s right or wrong. Just gently point out facts. That’s all.
How to pay what its worth for something
Have you ever faced a situation when
your kid bought something and they were cheated & charged exorbitantly? Or
demanded something from you, but they thought that it wasn’t that expensive?
Kids don’t always realize, just how much something costs. They just want it.
The best way to deal with this
situation, would be to ask them upfront, what they think, is the price
of something. If they demand a video game from
you, they might not know how much it costs. So ask them, what they think is the
price, & what is the maximum they’d like to pay for it. Many times, you
will find that the price is much more than they themselves think. In which
case, they might want to reconsider buying it.
I remember, when I was young,
my brother & I demanded a video game from my dad. He fobbed us off a couple
of times, but later he asked us, “Pata bhi hai kitne ka aata hai?” (“Do you know how much it costs”). We
were puzzled, as we really didn’t know the cost. We assumed it’d cost us
something like a 1000 bucks, but we later found, that it actually sold for more
than 3,000 at that time. Once we knew the price and compared it to the value it
delivered, it didn’t make sense to buy the game. We had much better,
healthier entertainment options.
And guess what? Dad bought us the
game, next year!
How to spend money wisely
Ask them their priorities, what they
need this year, what their wishes are, and help them sort out their desires and
their requirements. Ask them, what is more important? What’s secondary? This
way, you encourage them to think in the right direction.
You are giving them an opportunity
to understand
difference between needs and wants. This might not be true for small kids below 10, but will
be more relevant for children in between the ages of 10 & 18.
Kids often times speak or figure out amazing things, which we adults don’t
think about. Do this exercise and you might find that your kid has real smarts!
How to think about money
You should make sure that your
child’s attitude towards money is shipshape; that they respect money,
understand that it takes an effort to earn, and also understand the fact that,
while money is important, it’s only secondary, as far as happiness & a
content life are concerned.
Talk about money in front of them in
a way, which gives them an appropriate view. Make sure, you don’t give them an
impression that the family’s happiness isn’t as important as your job or
business. Read
Personal
Finance Mistakes
How to live on a budget
If you give your children
pocket-money, make sure they live on it, the entire month and they do not come
to you smack bang in the middle of month, asking for more, for things they
could have managed with the same pocket-money. This happens only when children
deviate from their monthly needs and carelessly
spend on what they don’t need. While,
they may ask for more, because of some emergency need sometimes, over a long-term,
you should make sure they stretch with that pocket-money.
Children will understand budgeting
better, if you yourself practice it (ouch!). When they see how you allocate
expenses each month, and stick to it,
chances are, they will replicate it at their level. While, this whole thing can
be tough initially, help them out, by giving them the extra money they need in
first 2-3 months and then restricting gradually.
How to invest
Start teaching your child, the
different ways of investing. Teach them basic banking, how banks operate and
what it means to
earn
interest on an amount. You can also buy them
some games which teach investing. Ask them to deposit some amount with you and
you can pay them interest per month.
When you give them pocket-money, say
Rs 500 per month, ask them to deposit back Rs 250 with you, with the assurance
that next month you will pay them 10% interest on that amount, ie : Rs 275 .
Though you might be out-of-pocket by Rs 25, the knowledge you impart to them is
priceless! This Rs 25 gives them the important message, that saving their money
and investing regularly can increase their money many times over.
When they start earning later in
life, this gyan will be something, they respect you for!. Also, remember to open a bank
account for your child as
soon as they turn 12-13 yrs.
How to exercise the entrepreneurial spirit
Don’t tell me you want your children
to do regular 9-5 jobs! Don’t you want to instill some entrepreneurial skills
in your children right from start, so that they know what they want to do in
life and take an initiative to work along those lines?
The first step, is to talk about
different ideas your children have. When they are small, they can have weird
ideas, but listen to them, & ask them how they can make money from some
idea. Ask them questions like “Can you
think of some idea, using which, you can make money?”
My own brother who is 13 yrs
old makes weird stuff out of junk which can act like a toy gun!
He once said, that if he can make 10 of those and sell at Rs 20 each, there
will be many friends of his who will be ready to buy it. Though he didn’t do
it, he surely has the right attitude.
You can encourage your child to do
some random / different / creative stuff for a few hours every day (during
vacations at least) and pay them extra money for it. This will help them earn
some money and also help you do some work for which you wanted to pay someone!
If you have a garden, you can ask
your child and his friends to do some random things for which you wanted to
hire a guy anyway. This has some advantages; First – your children will
understand, it’s not that easy to earn money and they have to work for it.
Second, you will help your kids to spend some time constructively, which they
would have spent playing or roaming around or playing video games. And finally,
your money stays at home
Thinking a bit bigger, maybe you can
really involve your child and his friends and work on some month-long project…
one, that has a whole business plan, revenue model and which then earns money
for 1 month (may be this can be done in summer holidays). Wow… this seems
exciting, talk to your child about this today and see the response.
How to handle credit
You should also start teaching your
child, to handle credit. If you pay them Rs 500 pocket-money and in the same
month they demand Rs 200 extra, you can give them that money, but now introduce
them a concept of “credit”. Tell them that it’s not going to be free and you
are cutting Rs 50 for next 4 months from their pocket-money and paying them
just Rs 450. If you want to add some horror and suspense, make it 5 months
(charge interest). This will make sure they ask for extra, only if they need
to. Stick to this with discipline, and don’t fall for emotional atyachaar from
your children (they are really good
at it, especially girls!)
The previous point’s example can
also be used here. If you are making some small project for them from which
they can earn money, loan them some seed money like Rs 1000-2000 (as a venture
capitalist) and then demand the money back after 1 month with interest.
Conclusion
Teach your children basics of money
from the very start. These tips will act as a foundation for your child’s
financial education and they can build upon these learnings in the future. Most
of these tips are for children, but can be used for other people in your life,
who may not be that good at personal finance. What say?
Some
additional suggestions:
- Instead of paying by
cash or card for the kids, let them maintain & track their own cash &
pay from their kitty for all their purchases (be it toys, cloths, snacks). Give
them periodically a budgeted amount based on your experience. This will train
them in managing a budget for a specified period.
- Teach them basic
Arithmetic using real money for their real life at an early age.
- Help them maintain
an XL sheet that contains all direct expenses done for them including fees etc.
Give them some idea of the other household running cost also. All of them one
day want to be free from all monitoring & supervision. When they know what
it costs to maintain their lifestyle, they will find ways to generate at least
that inflow faster!!
Here is wishing
financial prosperity to you and your family.
Warm regards,
Link to our workshops
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