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5 money lessons parents should teach their children
Help your children become responsible with finances
As children grow up, the concept of money and finances play a big role in their upbringing. As they enter college, children are expected to know basic concepts of money such as saving, using cheques, operating bank accounts, etc. Since this is also a time when grown up children start expecting pocket money to take care of their various expenses, and start spending on their own, and maybe even take up a part time job, it is important to ensure that they are aware of the various aspects of finances.
This is the ideal time to teach your child how to handle money, and to make them understand the importance of savings and investments.
One of the best ways to do this is to talk to them; explain various aspects of savings and spending. It is also a good idea to give them some money each month as 'pocket money', and tell them this is for all their expenses such as eating out, going to movies, etc. This will help them in keeping a tab on how much they spend and how they can save, as this will be their 'own' money as compared to their parent's money.
Some of the other areas in which one can educate their children are:
1. Making a budget
Ask your children to make a budget which includes all their income (i.e. pocket money and any money from part time jobs) and spending. This allows them to understand cash flows, and what their actual expenses. This will also ensure that your children will have more money at the end of the month as well as a better understanding of managing money, if they follow the budget.
You can sweeten the deal saying that if they follow the budget strictly for six months, you will increase their pocket money by a certain amount.
Anil Rego is the founder and CEO of Right Horizons, an investment advisory and wealth management firm that focuses on providing financial solutions that are specific to customer needs.
5 money lessons parents should teach their children
2. Earning money
Another idea to ensure your children understand the importance of money is to make them earn it.
For example, apart from the pocket money that you give them, a monetary value can be put on various chores they do, such as Rs 50 for cleaning the car, or Rs 75 for dusting the house, and so on. This will teach them the value of money and ensure that they will not squander away their hard earned money.
3. Wants versus needs
Make sure your ward is able to differentiate between their wants and needs. It is important for your children to know the difference between needs and wants and they should also know which to address first.
By knowing how to spend on their needs and wants accordingly, they can save the money systematically for their future. For example, spending on food is necessary whereas spending on party or expensive clothes is a want.
5 money lessons parents should teach their children
4. Keep them aware of loans
If your child has taken an education loan, let them know the principal amount and interest they need to pay after completing their education course. Discuss the loan in detail with the child, including the collateral (if any) put up, the repayment schedule, and the importance of paying back the loan. This will ensure that they live within their means while studying, as well as taking their studies more seriously in order to get a good job and repay or at least help repay this loan.
5. Credit cards
You can get your children an add-on card, which can be used for emergencies. However, the recent trend is that children expect to get a card once they are in college and want to use it to buy several things that are not necessary.
Giving your child a card should go hand in hand with an explanation that the card is to be used in emergencies only and not otherwise; and since it is an add-on card, you can monitor their usage.
This will give your child the financial responsibility of having a card and knowing how to use it, and stand them in good stead later in life.
Summary:
- Give your child pocket money and explain the importance of savings
- Ask your children to prepare a budget so that the pocket money is not spent on unnecessary things
- Teach your children to know the difference between their needs and wants
- Pay them for chores -- so they learn what it is like to work for money (i.e. get a job)