Here's how to teach BASICS of money management to your children

Start imparting financial lessons to your kids at an early age

It is important to teach children how to manage money as consumption patterns change, with a preference for experiences, entertainment, travel and luxury. Growing disposable income and digitalisation, too, are changing the way money is spent.

Against this backdrop, it is critical for parents to teach children money habits, helping them align their consumption choices with long-term financial security.

Getting the BASICS — Budgeting, Allowance, Savings, Identifying needs vs wants, Counting money and Smart spending — can go a long way in helping them make sound financial decisions.

Teach them to identify and sort coins, encourage savings through piggy bank and instil the value of earning by giving a small allowance for chores.

Helping children differentiate between needs and wants fosters smart spending habits early, providing a strong foundation for lifelong financial responsibility. Once through with BASICS, graduate to advanced concepts. Here are some of them:

1. Interest rates and their impact on financial portfolio

Teaching kids how interest rates affect financial portfolios can set them up for lifelong financial success. When interest rates rise or fall, they influence the value of assets like savings, bonds, and stocks, which impacts a person’s overall wealth. This dynamic is important for understanding why financial strategies change with economic conditions.

A fun, hands-on way to explain this is by setting up jars labelled as "savings", "stocks" and "loans" and give your child some starter money. At regular intervals, adjust the interest rate for each jar: add money to "savings" when rates are high, or make them pay add money to Loans when borrowing costs go up. This simulation will teach how rate changes affect different investments. This early exposure to interest rate cycles prepares them to make smarter, more resilient financial decisions as they grow.

Also read: How Indian parents are imparting money management lessons to their kids

2. Good vs bad debt

Young Indians are increasingly relying on credit to fund their lifestyle choices. This trend underscores the need for parents to teach kids the difference between good and bad debt. A simple at-home credit game can help: Start your child with a base score (eg 500), and track their choices daily or weekly.

Reward smart decisions like saving or school-related purchases (+15 points) and penalize impulsive buys like games or toys (-15 points). Review monthly to show how "good debt" (investments in education) helps, while "bad debt" (unnecessary items) does not. You can also set milestones with rewards (like special outings) for achieving higher scores. This simple approach can help build good spending habits over time.

3. Risk, reward, and research

With the rising influence of social media and pop culture on our spending behaviours, it is important to teach kids that research is key to making any financial decisions. For instance, before investing in stocks, they should learn how it works, assess the risks, and understand the volatility involved.

Teach them to ask questions such as "what are the risks" and "is this a shorter or longer-term investment?" If you have a teen, a great way of engaging them could be by guiding them on how to research a stock for investment and provide them with starter money to dabble their feet in the market. For a younger kid, a game like treasure hunt might be a fun exercise to help them understand risk and reward. Every clue can provide them two paths to choose from – a riskier path and a safer path. Their choices should ultimately determine their final reward. This can be a great way to teach them the linkage between risk appetite and reward.

Also read: NPS Vatsalya: How to invest in this scheme? Understand the features, benefits, eligibility and more

Most of all, keep an open channel of communication. Don’t shy away from discussing money you’re your children including financial problems. This will not only build their confidence in handling money but also their faith that they have a trustworthy guide for navigating financial nuances as they grow older.

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.