Children's Day Special: How to impart money lessons at a young age

Impart the right financial lessons to your kids at an early age

Children's Day, which is celebrated on November 14 in India, is a reminder of the love and care we shower upon our young minds.

However, a key aspect that we often tend overlook is the importance of imparting key financial lessons to our children such as how to handle money when they grow up and become responsible citizens.

As parents, we focus on providing the best education and upbringing, yet fail to equip them with the financial literacy they will need when they face life's critical challenges on their own. Parents need to bear in mind that financial habits are shaped from a young age and hence, it is vital to prepare their children for financial independence.

Pampering children at a young age: Setting the wrong precedent

Indian parents often pamper their children by providing for all their needs and desires, whether it’s education, toys, or gadgets. While this is done with the best of intentions, it can sometimes set a precedent for entitlement and dependency. Children grow up expecting their parents to handle financial matters, not realising the importance of managing their finances independently. This leads to a lack of basic financial knowledge, as children are shielded from real-world financial decisions. It’s crucial to teach children about the value of money and responsibility early on, so they can grow into financially aware adults.

Also read | NPS Vatsalya: Why children’s pension cannot be prioritised over education or parents' retirement plans

Educational institutions lack financial literacy

In most Indian schools and colleges, personal finance is not part of the curriculum. While academic subjects are prioritised, financial literacy, which plays a crucial role in everyday life, is often overlooked. As a result, many young adults enter the workforce without knowing how to manage their income, savings, or investments. This critical gap in education leaves individuals unprepared for real-life financial challenges, making them more susceptible to poor financial decisions, debt traps, and living from one pay cheque to another.

Facing uphill struggles after parents are no more

Many Indian children — once they grow up — find themselves struggling to manage finances after their parents are no longer around to provide guidance. This is because parents often manage all financial matters, and children remain unaware of important details such as investments, debts, and future plans.

When they have to shoulder the responsibility, they may feel overwhelmed, leading to poor financial decisions. Preparing children for independence is critical, and this includes involving them in financial planning, teaching them how to make smart financial decisions, and ensuring they are aware of their responsibilities from a young age.

Also read | Studying abroad: How to plan financially for your child’s foreign education

Instant gratification-filled lifestyle fuels debt trap

The modern Indian lifestyle is often defined by instant gratification. Parents, under societal pressure or driven by their own habits, take on debt to meet the endless demands of living a "good life" — from expensive vacations to the latest gadgets. This not only strains their own financial health but also sets a poor example for children. Children tend absorb this tendency, learning to prioritise spending over saving. When financial literacy is absent, they are likely to follow the same path of debt and short-term satisfaction, not realising the long-term consequences until it’s too late.

Children follow parents' financial habits

Children may not always listen to their parents' advice, but they do follow their actions. If parents exhibit poor financial habits, such as reckless spending, ignoring budgets, or avoiding investments, their children are likely to adopt the same behaviours. This highlights the importance of leading by example when it comes to financial discipline. Parents who model good habits such as budgeting, saving, and investing can help their children develop these skills naturally. Financial literacy begins at home, and the right habits can ensure a secure future for the next generation.

Preparing for recession or job or business loss scenarios

In today’s volatile economic environment, preparing for unexpected challenges such as recession or job/business loss is crucial. Many individuals, especially younger generations, are not prepared for such scenarios because they have not been taught the importance of having an emergency fund or planning for worst-case scenarios. Parents can guide their children in building financial resilience by teaching them about the importance of saving, creating an emergency fund, and planning for uncertainties. This preparation can provide a safety net and prevent financial stress during difficult times.

Indian parents play a vital role in shaping their children's financial habits. While pampering them at a young age may seem harmless, it’s important to gradually introduce concepts of personal finance, financial independence, and responsibility. By breaking the cycle of debt, delaying instant gratification, and leading by example, parents can ensure that their children grow up to be financially secure adults, well-equipped to handle the uncertainties of life. Personal finance and financial freedom should be life lessons taught both at home and in schools to build a financially-savvy generation.

The author is a personal financial mentor, boasting an impressive track record of over 25-plus years in the personal finance market.

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