How to make children understand finance in their own way
Usually parents like to teach their children many things along with their academics like sports, music, art, etc. right from their early age. However, one critical learning that often takes backstage is the importance of money, savings and investing.
Every parent wants their child to succeed in life. The steppingstone for this success come from the learnings that the child gets from family, school, friends and surroundings. Purposely I left out Google, Alexa and Siri in the above list as children these days believe they have answers to all questions. When it comes to lessons on finance, parents are the best teachers to make children understand in their own way. Usually parents like to teach their children many things along with their academics like sports, music, art, etc. right from their early age. However, one critical learning that often takes backstage is the importance of money, savings and investing.
Our standard of living is improving every year and it will continue in future as well. Most of the children are likely to get things comfortably with less struggle compared to their parents. Therefore, you must take the initiative to explain simple lessons of finance to them at young age.
Most children have their piggy banks in some shapes and forms which is a good start, but it should not end up being just a box to collect money. You can take the concept of a piggy bank further and make them understand the how savings work. Tell them regularly “Whenever you put money into piggy bank, you are saving money”. Along with it you can try to teach them when and why money can go out of their piggy bank. For example, when you plan to buy something for them, you tell them they can use their piggy bank’s money to buy it. Just say “You have Rs.500 in your piggy bank, next time we will buy that Rs.100 thing from it. After paying Rs.100 you will still have Rs.400 left with you.” They start understanding the math of savings and spending very easily. Don’t be surprised if they keep harping how much they have in their piggy bank every time.
Since they have got everything quite easily in their hand which is natural at that age, try an experiment to help them understand the value of money. You make them aware about how much it takes to buy a toy or play games in gaming zone or things they keep adding in your cart at hypermarket or online shopping these days. They are extremely quick and good learners; they can relate things nicely when it comes to learning from examples. This will help them realize things they want have value associated with it and it come with some price.
Few days ago, I came across a child who was sitting in a corner and appeared upset. When I asked her why she was upset, she replied “I had a toy that broke while playing. To buy a new toy, my parents have to work more in office and from the money they get from their office I can buy a new toy. Now they have to work more’. The conversation clearly tells us how children value their parents’ efforts for them when explained in their own way.
Another way to make your child understand saving and spending is to explain them using things from their own world. If your child forces you to buy something which is not good or if you feel it is not worthy, relate things to their world. For example, ask them “Do you know if you don’t buy this ice cream four times you can actually buy a good toy for yourself” Here, you are making them understand not just right spending but also saving.
Along with savings, the concept of investing and return can also be explained. Today, a 6 year or older child understands ATM belongs to a bank. In their own world, it is a machine where money never ends for you. You can use your bank’s savings account to explain investing and return. Tell them “We both have Rs.1,000, you keep that money in piggy bank and I keep it in bank. After a month her piggy bank had Rs.1,000 whereas your bank account had Rs.1,003. Bank is where you invest and Rs.3 is the return on your investment.”
There is no harm in starting with few lessons like these on money, savings and investing with your child. Give a try, this will help them understand the value of money, prepare them better and make them more responsible. That’s what every parent wants their child to do in all aspects of life, so why leave this topic for future.
(Author Harshad Chetanwala is Co-Founder MyWealthGrowth.com. Views expressed here are personal.)