So April has arrived and the new financial year has begun. Did you know that April is the Financial Literacy Month and is the ideal time to teach your kids to manage money? There is little to no formal financial education to children, unfortunately.
April is the time when most kids have just completed their exams and are finally free. So instead of sending them to tuitions or summer camps, why don’t you teach them how to manage money? Why wait till the kids are 16 (when they complete their 10th grade usually) and ready to go to college?
Here are some lessons you can teach your children about finance. Trust me, they will thank you when they grow up.
1. The difference between wants and needs:
Your kids are asking you to buy some video games or some dolls which they will anyway get bored of, within a few days. Halt! Ponder over it! Ask them if they really need it or just want it because Ashwin has video games/Ashwini has dolls? Do they need it or do they want it? There is a contrast between “need” and “want”. Make them understand. Food, air, water, clothing, and shelter are what they need. Luxury is a want. Wants won’t stay for long. This is mentioned in the Chanakya neethi by Chanakya. Spend wisely.
2. Money is finite, even for affluent families:
You might be rolling in money, but even for you, money once spent to purchase an item won’t be available to purchase other goods and services. Make your children understand that. A natural way and an easy way to teach them this is to take them to the grocery store and give them choices “Either your favorite cookies or that new brand of chocolates you want because you saw your favorite cartoon character in it.” Explain that money for both is not in the budget.
3. The backlash of making a money mistake:
Making a poor money choice and suffering is actually a valuable experience which will teach them not to be spendthrifts. Let your kid buy that bad packet of potato chips from the money he got as a present. When he realizes that the chips are bad and he won’t get that money back, he will learn. Don’t replace that spent money because if you do that, the lesson will be lost.
4. Delay gratification:
Before buying anything, ask “Do you want it now or do you think you might want it later?” This applies to you and your child. Teach them to ask themselves this question before making any purchases. The chocolate chips aren’t necessary for now but might be for later, then don’t buy it. This will teach them to save for higher education, retirement etc.
5. Teach them that credit comes from borrowing and that comes at a cost:
Credit is a valuable tool. The use of credit cards can lead to overspending and interest charges. Teach them that they must spend wisely. Buy only what they need, not what they want.
6. Time assists your money to grow:
Money has a time value. If money is invested over a long period of time, it has potential to grow significantly.
7. The money required in the real world:
According to kids, the highest amount of money might be about one thousand Rupees. Show them how money works in the real world. A monthly income of 15,000 Rupees Minimum is needed to run the household AS IN April 2018. Show them the electricity bill, water bill, telephone bill, mobile bill, grocery bill and your taxes paid to the government.
8. Budgeting is necessary:
While managing your finances it is essential to maintain a budget. Make it simple and easy to follow for the kids. Give them 500 Rupees every month and tell them that they have to take care of their needs in that 500 Rupees only. No extra money. No bonus money for helping in chores, that will teach them to be corrupt and give and take bribes. Teach them to maintain a budget.
9. Let them see how you make budgets and let them manage their own finance:
They should be shown how you manage your finances. Then they can be allowed to manage their own finance. Like I said in the previous point, give them Rupees 500 and show them how you make your budget. Then make them create and follow their own.
10. Discuss tax returns, income, net worth and assets in front of them:
This will give them also an idea of all these. Don’t avoid these topics in front of them.
So these are the lessons you can teach your kids about financial literacy.
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