Teaching children financial literacy from a young age is very essential
What will my child do when he grows up?!”—This is a concern, parents constantly grapple with. It is more evident in the Indian society, where the umbilical cord virtually does not get cut even as the child steps into adulthood. This concern encompasses the wish that they should do well financially along with being healthy and happy. It is very important for parents to realise that they create a strong foundation by shaping their child’s attitude towards money during their growing years.
There are different ways of doing this depending on the age of the child and can start as early as kindergarten when the child learns to count. For example, make them put some coins in a piggy bank regularly to help them understand the value of savings.
The approach needs to evolve as the child grows. Many times children accompany parents to supermarkets or grocery stores. You can use that opportunity to make them pay at the cash counter to make them understand the use of money as a medium of exchange. Try to inculcate the importance of money and judicious allocation of it from a very young age in children.
Parents often tend to succumb to their children’s demands and tantrums by freely spending on toys and goodies out of love or even submission. Since children learn through observing parents, it is better to refrain from withdrawing cash from ATM in front of them often, as it might give the impression that getting money is just too easy.
Day-to-day situations should be used to drive home the importance of money. For example, teaching children to postpone purchases by pretending that there is no money, or there is too less money in your wallet or card is a good idea. Make them realise that money is finite and needs to be allocated. For example, make them choose between two toys or goodies that they are demanding, saying that there is only enough money for one. Children need to be made aware that money needs to be earned and that their parents work really hard for it. While going to office every morning, simply saying that “Papa or Mummy is going to office to earn money” along with a good-bye will over a period of time make them realise the concept of working for money.
As they grow up, parents can start discussing some household expenditure in front of the child like buying a television or white goods or a car and budgeting and planning for the same. The good old pocket-money system in teenage years helps them budget in a more meaningful way,helping them to learn to distinguish between basic and leisure expenses. Making them operate their own bank account when they turn 18 should help them understand the banking system and make them feel more responsible towards money.
Though very rare in India, some families did encourage their children to take up part-time jobs during summer breaks, which helped them understand the importance of employment and money management. May be it is time to revisit the same idea.
High-end financial decisions like availing loans, paying EMI, time value of money eventually come with experience and peer group outlook towards money. For example, the 70 and 80’s generation had often refrained from availing loans and somewhat detested the idea; (unless they were planning to buy a property). However post 2000’s, the generation comprising of millennials and GenZ, loans and leverage is considered ‘normal’. In fact, parents’ approval might not be taken into consideration at all in this regard. Both the approaches were relevant in their respective times; however, the most important thing is judicious allocation and use of money and more often than not – the seeds of this are sown at a young age by responsible parents.
The author is the CEO of Karvy Private Wealth