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How do you explain the concept of ‘SIPs’ to a five-year-old? How do you explain the term ‘liquidity’ to a 10-year-old? Talking to children about personal finances can seem challenging. However, as tricky as it may be, in today’s times, it is of utmost importance to raise money-smart kids.Many people end up making poor financial choices in their adult life or miss out on profitable opportunities because of not being financially aware since their childhood. Therefore, parents must take up the responsibility of teaching financial literacy to their kids from a young age.
Here’s a list of top five tips that will help parents raise a money-smart child:
1. Speak Their Language
Most parents shy away from talking about money with their children. They feel that talking about finances might overwhelm kids. However, they could not be further away from the truth.Parents can begin by slowly introducing simple financial concepts to their kids. The point is not to burden children with complicated facts and details but to gently educate them. Parents must learn to explain these concepts in a way that their child can understand- speak their language, communicate positively, keep the conversation free-flowing, and be open to answering their questions.
2. Lead By Example
As children grow older, they subconsciously imbibe their parents' values and start mirroring their behavior. Parents must learn to set the right example for their children when it comes to money matters. Their actions must reflect their teachings.The entire point of advocating the importance of savings and financial prudence shall be lost if parents constantly indulge in wasteful and extravagant expenses. Parents must strive to serve as their children's role models by first practicing good financial habits themselves.
3. Encourage Them To Start Saving From A Young Age
The crux of teaching children to be smart with their wealth lies in encouraging them to start saving from a young age. This step entails fun activities that parents can participate in with their children, such as:
- Giving kids a weekly/monthly allowance (the amount should be small enough so as to allow them to be frugal with their money)
- Encouraging them to make meaningful purchases from their savings
- Taking kids along for banking visits
- Parents can also use the time-honored ‘piggy bank’ to initiate the idea of savings in a fun and enjoyable way. After a while, they can then advance to a bank account.
4. Learn To Say No
This is perhaps the most challenging step to take for parents. Often, parents choose to raise their kids in a protected environment that shields them from the difficulties associated with money. They aspire to provide their children with every bit of luxury in the world, even if it burns a hole in their pocket.This practice encourages unreasonable wants instead of boosting kids to draw a line between wants and needs. Parents must learn to say no when required and treat lavish experiences as rewards rather than making them a part of their everyday lifestyle.
5. Find Opportunities to Impart Values
Raising financially smart and aware kids is not an easy task. Parents must be consciously involved in their kids' daily lives. Many day-to-day occurrences can be used as opportunities by parents to demonstrate correct financial habits.For instance, when your child talks about wanting a luxury item, get them to paint a picture of it, and hang it up for them to see and be reminded every day about a goal they need to save for.The bottom line is to use simple real-life examples to teach kids about how to handle money.A penny saved is a penny earned. Planting this wise thought in children's minds can pave their path to financial independence and success. It is, thus, never too early to start teaching children to be financially literate.
DISCLAIMER
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.