Perhaps this article is amongst the most closest to my heart. If good habits are inculcated from right at the childhood, they go a long way in paving a successful financial path in their future. In this article I have tried to explain how can we financially involve children from very young age and give them exposure of different types of financial instruments which they can make use of in their life.
From Toddlers to Teenage Group
I call this age group as T2T – toddler to teenage. Amongst the things which every child learns very quickly is that the small metal round coins can buy them happiness in the form of their favourite snacks, candies and chocolates 🙂 The more they grow, the more coins they need to fulfill their little desires and slowly they realise that coins fall short of fulfilling their aspirations and rectangular papers called Notes are more powerful to get their desires fulfilled. Then starts their number classes at school and the more they learn number counting, the more increases their desire to hold the currency… Interesting isn’t it ?
Now the issue is how do we educate our children towards financial planning at this stage ? It is a fallacy if you think that children don’t know what money is. Lets me present a few ideas which I have thought about to inculcate good financial habbits in children from the very early stage :
Piggy Banks – Get it for your Kid
Piggy banks are one of the most prized possessions which almost every child has – heavier the better… It is full of their potential purchasing power which would be used to purchase their dreams. There are so many versions of piggy banks, from ones which look like a piggy, small safes with mini keys to very basic pottery ‘gullak‘. All of these mini saving instruments serve a common task – put your coins / notes into the slot and it shall accumulate your savings. Most of these version of piggy banks are not transparent enough to allow kids to have a see through of how much they have filled their piggys. Won’t it be a good idea to have transparent / see-through piggy banks so the kids can see how much they have saved. Isn’t the saving much pleasant if you can also view how much you have saved !
Create Competitive Environment
Why should competition just be limited to studies at school. Bring it on in the form of saving challenge between kids. Instead of promoting just your child to save, think about options of starting healthy competitions between a community of kids who are all promoted to save. Bring on an element of comparision between children’s savings. Once a quarter / month open the piggy banks of each of the kid and count infront of them with other kids watching you count. If you would notice it closely, all of the children would have sparkling eyes and attempting to outbeat each of their sibblings, cousins, friends in their savings. And this may be just the start. It would create a self motivated desire within each of the children to save more than their peers, just like in a class where each kid tends to outpace others.
Pocket Money – A key to Family Budgets
This point attracts different views. Some parent do not want to give pocket money to their kids and want to address each requirement. Others want to give some pocket money to kids to allow them to meet their day to day petty expenses. While there are extreme others who end up paying large amounts of cash in the form of pocket money to their children. I won’t say that any of the above is correct or wrong. However, pocket money has its own benefits which allow children to learn the important lesson of Budgeting. This helps them in future when they have to maintain their true family budgets where the income does not increase by asking parent to provide a few extra mullahs to cover the deficit. Provide a small, but modest amount of Pocket money to your children and ensure that you have clear terms of its usage. Kids are more intelligent than what we think. They end up taking their pocket money as well as taking more funds for funding their expenses. Make sure that your kids have agreed the expenses which would be covered by the pocket money and the ones which would be covered by you.
Lessons on Capital Growth
Think about schemes which can promote your children to start inculcating saving habits. They would save more if they can see their money multiplying by not touching it and keeping it in saving schemes. One of such schemes you can easily start at home and can be closely linked to the pocket money scheme. I can give a starting point and you may want to add creativity to suit your individual scenarios. Ask your kids to start keeping their savings in a locked piggy bank with you. At month end, you would open the piggy bank and count the funds. Any balance in the piggy bank at month end would attract an additional 1-2% extra amount which shall be contributed by you. Though your kids would probably not understand the word ‘Interest’, in essence you are teaching them an interesting and important lesson of ‘Effects of Compounding’ and ‘Fixed Deposits’. This would add incentives to your kid’s growing brain that if they don’t touch their savings, it would grow by 1-2% per month. On the contrary, if they withdraw, they won’t be able to enjoy the extra income. You may also notice that your kids would start saving more from their Pocket Money and contribute towards this scheme which you have started.
Savings Linked to Financial Goals
Kids are cute and we would like to fulfil their small & big desires. However, how about letting them also feel that they have earned their desires ? You may want your kids to learn an the lesson of financial goals. For example lets assume that your child is looking forward for you to buy a cycle worth Rs. 5,000. You may realise that if you ask your child to save the funds to buy the cycle, it may take years considering limited saving potentials out of their pocket money. As a result you may also face resistance from him / her and may soon end up being sour grapes. However, if you tweak this saving goal as 10% of the price of the cycle, i.e. Rs. 500, then all of a sudden the goal becomes achievable for your child. Based upon your personal situation you may want want to tweak these percentages to suit your child’s saving potentials.
Start Banking at Early Stages
Who says that kids should start learning banking when they are major. You can involve the very important banking lessons right from the time your child starts understand monetary affairs. Small steps such as filling of cheque deposit counterfoil, depositing of cheques in the bank, taking your child to the bank when you intend to do banking transactions, etc. would infuse the confidence in the banking industry from their childhood.
Opening of Minor Bank account or Post Office Saving Accounts
Encourage your child to start keeping their small funds in a bank account. If that sounds as a hassle, open a post office saving account for your child and help him understand how that account balance reflects his monetary strenght. If you child wants to test this strength by withdrawing his funds immediately after depositing it – don’t discourage him / her. After a few transactions he /she may start having faith in the banking channel and would start relating his account balance as his funds.
Avoid Pampering – If You Can
Perhaps this is the most important lesson which the parents need to understand. Pampering is good, but over pampering acts like a poison which erodes the value of money in the minds of the children. Let the child earn the luxury by proving that he or she deserves it. Tag their aspirational gifts to goals which are not very easy to achieve, but at the same time are not extremely difficult as well. Your child may be eyeing that latest Xbox or Playstation. Instead of buying that gadget upfront, link that gadget as a reward which would be provided if they acheive a set % marks in a subject or any of the good objectives you may have in mind. This would inculcate a relationship between hardwork and reward in their little brains as well as giving them the bandwidth to appreciate the value of the the rewards. This may then go a next level in making your child financially prudent in expending their limited resources towards best value added products.
I hope you would have enjoyed the above tips and tricks to involve elements of finance within the little brains. If you have any more tips, why don’t you add to the list in the form of comments to this article ? Looking forward to hear from you all.