Recent studies have shown that Indians across the major cities are not very good when it comes to financial planning. We can partly blame this on our social fabric which does not allow us ample opportunities to hone our money management skills during childhood. However, we, as adults, would do a great disservice to our children if we fail to instill good financial habits in them.
With rising medical costs and nuclear families gaining popularity, our children can no longer afford to be ill-prepared in financial matters when they grow up.
Here are five time-tested ways to teach your kids about good money management.
Be a good role model
Studies have proven that kids often follow adults in the house - most importantly, parents - as their first role models. One may be surprised to know that imitation plays an important part for kids to learn. Involving kids in household financial decisions is a good way to do this.
One can discuss, explain and take kids' opinion on everyday matters. Here are a few topics you can use to engage your kids on such matters:
- Shopping: Why you think buying clothes on sale is a better idea?
- Dining: Can a family enjoy the same tasty food in a less costly restaurant or at home?
- Utilities: Can reduced AC usage help in cutting electricity bills?
- Grocery: Why may not buying imported products be so cost efficient?
- Frugality: How, by spending smartly, one can save for birthday gifts for the elderly.
Encouraging, praising and rewarding kids when they exhibit good money management behavior is a good way to go about it.
Use video games
In the era of Xbox and Playstation, there are no better fun ways to teach your kids some financial skills. Kids can play popular online money management games such as Road Trip to Savings, Financial Football, Peter Pig's Money counter, Money Metropolis, Financial Soccer, Record shop tycoon, Burger Restaurant, and so on.
The good old family board game is still considered one of the best means to impart valuable financial lessons. This way, kids will not only learn to count while spending quality time with family but also help you carry out basic calculations. The game of Monopoly helps kids learn how to manage limited money best and think the way a banker does.
Encourage saving towards goals
Discussing with children things they want to buy in near future - toys, games, bicycle etc. - will help them calculate how much they need to save each day to reach their goals. Gift them a piggy bank to put their savings in. Kids can also be guided about the importance of prioritising and trading off, since not all goals are achievable with the same resources. When repeated over a period of time, children start believing in long-term savings and develop financial discipline which adults lack these days.
Make them earn pocket money
Kids need to understand that money does not grow on trees but is earned through hard work. Children should be encouraged to earn pocket money by getting involved in different kinds of tasks. A kid of 7-12 years of age can easily handle household chores whereas teenagers can make a decent pocket money by taking up a part-time job. By working towards earning their own pocket money, children become more responsible and start valuing the money.
Give budget projects and allow mistakes
Passing an overall budget objective to kids and giving them money to come up with a plan to achieve the same is a good idea. For example, you can ask them to plan a picnic. Let them come up with all activities, food, fuel and other costs, within a strict budget. Let them, then, make payments for these expenses. Failure or mistakes are also the best teachers. Let your kids figure out that they have overspent on one activity at the cost of another or they simply underestimated the costs. They need to learn to make choices within the budget. Involve bigger kids in running and analysing your home budgets.
ArthaYantra.com provides personal financial advice online.
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