Instilling healthy money management habits from an early age is crucial for children’s future financial well-being – its common sense. But in the busy-ness of life we tend to prioritize other actions – school education, tuition classes, skills and somehow miss teaching our kids the simple but fine art of practical financial learning. Even when we are aware that a strong foundation of financial literacy empowers kids to make informed decisions, set goals, and develop responsible spending habits that will benefit them later on in life as well. Not only financial literacy empowers but also protects. In a world where we are witnessing hefty amounts of scams daily, financial literacy enables individuals to protect themselves from such scams.
As per a report released by SEBI in 2022, only 16.7% of teenagers in India are financially literate – infact the National Education Policy (NEP) pointed out the need to inculcate financial literacy in children from an early age. Pursuant thereto, school boards like Central Board of Secondary Education (CBSE) have collaborated with the National Payments Corporation of India (NPCI) to develop a financial literacy curriculum for grade VI students. However, experts have pointed out the need for inculcating financial literacy and the importance of finances into young minds. So, here are some simple but creative ways to teach children about money management at an early age and ways in which you can make learning engaging and enjoyable for them.
The Power of Saving
Teaching kids the value of saving is an essential first step in money management.
- Introduce your child to the concept of a savings account by providing a piggy bank or a ‘My Saving Jar’ at a young age.
- Set saving goals whether it’s for purchasing a toy, going on a trip, or donating to a charity.
- As they see their savings grow, they will learn the importance of delayed gratification and the rewards of financial discipline.
One can begin by making the child diligently learn to collect spare change or earn additional funds by helping with household chores and later on their determination will pay off once they purchase what they aim to thereby making them realize the value of setting goals and saving.
Earning and Budgeting
- To teach kids the concept of Earning: encourage them to take on simple age-appropriate tasks at home or start a small business. My own parents used to give us pocket money for simple tasks like helping in the garden, helping in the house work. This will not only teach Children to earn, but also develop skills that hone their creativity, practical skills, confidence and financial acumen and yes learn from their mistakes.
- Whether it’s making their own bed and cleaning their room, cupboard, helping in housework, walking neighbors’ dogs, or selling homemade crafts or making videos for social media, children can learn the principles of entrepreneurship, negotiation, and financial responsibility early in life. Warren Buffet started at age 13!!
- You can also teach them to budget their earnings by dividing the money into different categories such as saving, spending, and donating.
- A cousin gave an x amount of pocket money to her kids and used to set rules on how they can spend it at the store or mall. For example, each kid could only buy 3 items within the amount allotted to him/her. This encouraged the kids to research, look at costs, quantities and quality. They were happy kids at the end of the shopping with a sense of self worth having done the analysis themselves and learned whether they did good or great by comparing their purchase to the other kids.
Differentiating Needs and Wants
- Teaching kids to differentiate between needs and wants is essential in developing responsible spending habits. You can begin by making them understand that basic necessities like food, clothing, and education are needs, while toys, gadgets, and entertainment are wants.
- Engage them in discussions and decision-making processes when it comes to purchasing items, encouraging them to prioritize and make thoughtful choices.
Giving Back
- Encourage a sense of empathy and generosity by involving them in acts of charitable giving.
- By donating a portion of their savings or volunteering their time, adds a dimension to kids learning that is invaluable.
- Discuss charitable causes together, allowing your child to choose causes that resonate with them personally.
- Some activities like organizing a neighborhood cleanliness or clothes donation drives gives children a firsthand experience and understanding of the power of collective action that small contributions can lead to a big difference.
Teaching kids money management skills not only prepares them for financial independence but also nurtures a lifetime of responsible decision-making. By introducing concepts like saving, earning, budgeting, needs versus wants, and giving back, children develop invaluable skills that will serve them well into adulthood. Through interactive and engaging experiences, we can empower the next generation to become financially savvy individuals who can confidently navigate the complex world of personal finance.