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How should one teach his kids to manage money?

    IndianMoney.com Research Team | Saturday, February 01,2014, 06:31 PM
 

 

One has heard of a famous saying” Waste not want not”. What does one’s child see when he switches on the television or surfs the internet. Glamour, wastage and extravagance. Have money spend it, don’t have borrow money spend it is the norm. What would ones child learn from watching these programs but the message conveyed? One’s child has a very impressible mind and learns from observing and watching. What would he think when he sees his friends or peers show off costly goods and accessories? One’s child needs to learn how to manage money as early in life as possible before bad influences creep in. Once extravagance sets in money disappears so fast one’s child wouldn’t know how to manage his money and then it is too late. The debt trap awaits.”Debts are fun when acquiring them but not while retiring them”.
 

How does one teach his child the art of managing money?

  • Start young : Ones child even though 5 years of age is very observant and learns by watching. When one goes shopping and his child asks for a chocolate, cash is handed to him and he makes the purchase. One’s child learns at a very young age the value of money and how it can be used to purchase things he wants. One’s child learns the power of money and how it satisfies’s his wants. One’s child first thinks of his wants and not his needs. This is the right time to start teaching him about money as this is a finite resource and should be used wisely. Remember just because you can afford it does not mean you should buy it.
  • The art of saving : One’s child now knows the power of money. The next step involves teaching him how to gain control over it. One’s child learns about the piggy bank which teaches him to relate to a savings bank account. Ones child might want a toy which costs INR 100. One must teach the child how to earn it .One’s child assists in the household chores and gets say INR 5-10 for his effort which he puts in the piggy bank. How does one teach his child about simple interest? One needs to put in funds in a smaller proportion to what one’s child earns. If he puts in INR 10 in the piggy bank one must put in INR 5.Ones child learns the art of simple interest and how it helps him to attain his financial goal namely purchasing of that toy. Remember “A penny saved is a penny earned”.
  • The art of investing : Ones child plays monopoly and this is a very good method to teach him investing. Learn while playing is the motto. Monopoly is a game of dice. Each player is given a sum of money. One of the players is a bank. As one rolls the dice he moves along the squares and uses his money to make a purchase by procuring the title deeds of the square where he lands. If after the purchase another player lands on that square one can charge him rent as he owns the title deed. Rent is specified in the deed. Think it resembles investing in real estate and collecting money as rent if it is let out? As one continues to play if lucky he may own the title deeds of a particular colored group say green. One can then build houses by purchasing them from the bank and collect a higher rent .If one collects four houses he can then build a hotel by replacing these houses by a single hotel from the bank. If another player lands on any of the colored squares in which one owns the title deed and has built a hotel he can collect huge rent. Think appreciation of assets. If one wants to learn how to play monopoly check wikihow.com. Remember you can do two things with your income. Spend it now or save it for later.
  • The art of making a budget : As ones child grows older he learns the art of making a budget. Budget is basically making a list of all sources of incomes and all spending. One can start this practice by giving his child authority to manage the groceries in the budget. One’s child learns how much of the budget income needs to be set aside for the purchase of groceries. What limit or portion of the budget should be set aside for groceries. One’s child might even actually shop for groceries to learn the practical approach. One’s child learns not to cross the set limits. One’s child also learns about inflation as the prices of groceries increase rapidly. Inflation eats into the purchasing power of money. One’s child learns how rapid this process can be and learns the value of money and savings. Remember a budget tells us what we can’t afford.
  • One needs to set an example : One of the most difficult part of teaching a child how to manage money is by setting an example. One’s child does not need to be told and he learns by watching. If one purchases and spends lavishly on himself the child watches and gets the idea that this is the way to go about life. One’s child sees you spending lavishly on clothes then one tells his child sorry there is no money left to buy that toy. One’s child believes that if his dad indulges in his need say purchasing a costly suit then dad must indulge in their need namely buy the toy. Why would one’s child believe there is no money when he sees the purchase of a costly suit as an indulgence on oneself? Remember Every young man should have a hobby. Learning how to handle money is the best one.

How does one teach his child about debt?

One can teach his child about debt through an exercise which requires no small measure of courage. Experience from one’s own past mistakes. One might have spent too much money on clothes and had none left when he required a new pair of shoes in a hurry. One can also teach his child how he fell in debt through excess spending using a credit card. There is no harm in owning up to past mistakes. This practical approach is the best way to teach a child on how excess spending using a credit card leads to debt owing to very high interest rates charged on them. Remember rather go supper less than rise in debt.
 

How does one teach his child about fixed deposits?

When ones child is in high school he learns about compound interest. How compound interest help one’s money double over time. One can now teach his child about fixed deposits and how the power of compounding helps in doubling savings with time. Sure it doesn’t have the glamour or the high risk and return of the stock market but one’s savings are safe and increase through the interest component in a slow and steady approach .Remember “ The most powerful force in the World is compound interest”.
 

There is a famous saying “Being unable to say no can make you exhausted, stressed and irritable.”One’s child is very smart and might throw a tantrum trying to embarrass one in public until he gets what he wants. Even though it might be hard one should know when to refuse and not bow down to his child’s pressure tactics. One needs to teach his child to spend only after saving. Teach one’s child the famous saying “ A small leak will sink a great ship”. Always beware of the small expenses.
 

IndianMoney.com Research Team

The research team at IndianMoney.com comprises of certified and experienced professionals who share the company's vision to make every Indian financially literate by equipping every Indian with right and unbiased advice. IndianMoney.com research team provides newsletters, articles, videos and FAQs on various financial products and concepts only to help you make wise financial decisions.

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