Children’s Day: How to talk money with your children?

Money doesn’t buy happiness. But it does bring financial stability, security, and independence. This is something that many financial planners insist parents must teach their children from a young age. You want to lay a foundation they can build on.

The question is: how do you teach your kids about money, amid lessons in mathematics, chemistry, literature, and so on. While India’s education system still has miles to go before it includes money as a subject in school, there are a few things you, as parents, can do.

Talk money

Many parents believe that kids don’t get money. That isn’t quite true, say many financial planners. It is believed that many children understand things like saving for the future quite naturally. This behaviour can be easily gauged in the early years.

“Some children save a bit of their chocolate, to relish it the next day. While some consume all of it at once,” explains Vishal Dhawan, Founder and CEO, Plan Ahead Wealth Advisors. That’s pretty much how our relationship with money works as well, he adds.

The earlier you start talking about money with your children, the likelier they are to understand its value and inculcate the habit of saving for the future.

Explain to your child how a bank account works. Show them your bank statements and explain the concept of interest. Relate it to the simple and compound interest formulae they learn at school.

Gamify money

Start buying properties, collecting rent, paying taxes, or go to jail if you embezzle funds.

Okay, perhaps that’s too much. But you could teach your kids the joys — and the risks — of managing money by playing Monopoly, a popular money game for ages. If your children can count, they’ll enjoy money games.

``Trusting them with small amounts of money during vacations can give them a sense of financial freedom, while also instilling in them the discipline of budgeting their expenses,” says Deepali Sen, Founder Partner, Srujan Financial Services.

Take them to a bank or an ATM at times. Show them around to see how things are done.

Lead by example

How you spend or treat money leaves a lasting impression on your kids. It goes something like this: if you tell your kids not to watch too much television, then you’ve got to limit your TV time as well. Too much retail therapy might tell your kids that splurging is fine. Then, if you lecture your kids as to why they should save some of the money given by a relative instead of blowing it all, they will find it hard to buy that.

Once your child turns 18, give her an add-on credit card. Make sure the credit card bills come straight to you, so that you can monitor her spending. Keep a lower credit limit on the cards so that she can’t go overboard. Have a word with your child if she touches the spending limit often.

Help your children distinguish between needs and wants

Shopping has become easier in recent years. Today, you can buy almost anything from your phone. It may be tough to teach children the difference between what they need and what they want, but there are ways.

One way to enforce a strict limit on their pocket money, and leave it to them to decide how and where they want to spend.

When you visit multiple gift shops at tourist sites on vacation, give them a budget and let them decide how they want to spend it. This nudges them to think whether they should spend all their money at the first shop they visit, or should they hold back, apply their mind, and then make a choice.

Buy a piggy bank

This can be done at a very young age. It’s simple: just put a coin every day or once a week into the piggy bank. Encourage your kid to put their gift envelopes in their piggy banks.

When your child grows up, the piggy bank can turn into a bank account. Several banks allow minors to open bank accounts.

It can be a good idea to start mutual fund SIPs (systematic investment plans) in their names (with parents as guardians) and make them understand the functioning of such products by sharing the scheme statements with them.

“It is important to clarify the difference between saving and investment from an early age. Because very often, this confusion continues into adulthood,” adds Dhawan.