Money management for kids: Early exposure shapes financial habits

Why financial lessons must be imparted at a young age

Anup Seth

Be it dancing, sports, elocution, or studies, children nowadays are quite adept in several spheres of life. New-age parents nurture multiple skills in their children to give them a more rounded childhood experience and prepare them for successful adulthood.

It is quite surprising then, that most parents either miss out on or are late in teaching one important aspect — money management.

Also read: Children’s Day Special: Board games & bank accounts — how parents instill financial values in kids

Money management is an essential life skill, yet it isn’t a part of our formal educational curriculum. Children usually pick up money management habits from their parents, and it is therefore critical that parents promote financial education from a very early age.

Here’s how you can make financial literacy fun for your kids through simple activities:

Understanding money (age 4-5 years)

Teach them the value of coins and let them sort coins. This will not only help them understand what money is, but also learn how to count it. Tried and tested concepts like piggy banks help kids familiarise themselves with money at a young age.

Earning their allowance (age 6–10 years)

Teaching your kids the value of earning money from a young age is critical, because it helps them understand the concept of income, budget, and living within their means. Let them earn their allowance by conducting simple tasks like cleaning their room, assisting you with grocery runs, etc.

Learning about banking (age 11–14 years)

Ease your kids into understanding the concepts of savings, investment, taxation, and more. If your child has saved up from their allowance, give them an incentive to retain their savings instead of spending it.

For every Rs 1,000 they save, contribute Rs 50, emphasising the idea that savings can lead to greater financial outcomes. It also simplifies the concept of compounding for them, because an interest of Rs 50 each month motivates them to save the money for a longer period.

Also read: Thrift and Spendthrifts: Meet the Gen Z who know the ABC of investment

Learning about investing (age 15-18 years)

Help your child start a systematic investment plan (SIP), which allows them to regularly invest a portion of their saved money. Explain how the money they invest will grow over time. You can make investing more engaging by purchasing shares of a company they are passionate about, effectively making them part owners of that company.

These real-world, hands-on experiences teach kids valuable financial lessons  as they watch their money work for them, helping them achieve their goals, whether it's saving for college, or even their first car.

Message to parents

It is important to cultivate the right financial habits in your children from a young age. This includes speaking openly and frankly about money. The world we live in is increasingly promoting spending patterns that can lead to harmful money habits.

A classic example is the option of ‘buy now, pay later.’ These things lead to individuals prioritising an unaffordable and unsustainable lifestyle over the longer term.

Consumption spending has become the norm, which could lead to an uncertain financial future due to lack of financial discipline. Unless your child has understood the upsides and downsides of money management, they can’t be in a position to make well-informed financial decisions as adults.

(The author is the Chief Distribution Officer at Edelweiss Tokio Life Insurance)