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Tell your kids, 'Money is the root cause of all good!' Of course, the line is from Ayn Rand.
We are in the grip of an exam fever with all parents busy with an 'open day' in school before the examination. Then, there will be a vacation -- Diwali vacation as it is called in India. But with all this exam, vacation, exam, unit test, one thing is clear: nobody is teaching your little darlings anything about money.
While our children's teachers share responsibility of teaching them to read and write, they won't do much to help our children develop basic financial literacy skills. Beyond simple addition and subtraction, there just isn't enough time in the school day to do it all.
So what's a caring parent to do? Take your child's money-management education into your own hands, of course. Here's how.
It's important to remember how your kids think when it comes to money (or anything else). Most children are concrete thinkers who can demonstrate progressively organised and logical thought but have a limited ability to think abstractly.
Preschool and elementary-aged kids will have trouble understanding abstract concepts like inflation, interest rates, and saving for a college education that is 12 years away. However, when my five-year-old daughter tells me the following things, I realise that she understands money:
Daughter: Dad, I need money to buy a gift for Mom.
Me: Why don't you use what is in your piggy bank?
Daughter: Dad, coins do not buy anything, I need notes!
My wife and I shop separately, so when my wife was contemplating quitting her job, my daughter said, "Do not quit. Dad does not buy you anything. Keep your job."
At 5, she understands that bread costs Rs 17, a car Rs 8 lakh and a house Rs 40 lakh. This is only because of constantly talking with her about money -- unemotionally and factually.
That's why, when I told her that we couldn't buy the five-feet tall teddy bear because we don't have enough money, she was worried that we wouldn't be able to buy bread. To her, 'no money' meant, quite literally, that our pockets were empty.
I should have said, "We choose not to spend money on that so we have enough money for other things we need to buy."
Understanding the way your child thinks is the key to providing him or her with a quality education in money management. Here are seven ways to help your literal thinker learn about money:
1. Piggy bank
Buy your preschooler, a piggy bank and give him or her a stack of coins to put in it. Ask your child to sort the coins in a variety of different ways -- shiny versus dull, big versus little. Know that he or she won't understand for some years that a rupee saved today can be better than a rupee saved when she is 30 years old, they should get a touch and feel of money.
I make my daughter pay money at the shop so that she understands the difference between coins, a small note and a big note. Supervise carefully, though, since sometimes, they still like to test things in their mouths.
2. Pocket money
For older children, establish an allowance so he or she can begin to make independent money decisions. Some folks will advocate linking the allowance to certain chores; I prefer establishing the basic chores (e.g., making the bed, cleaning their own room, and setting the table) as something each person does because they are a part of a family and it is their job.
Be very careful that they do not become too money minded and keep asking, "How much will I get for looking after granny when she is unwell?" However, giving your child 'extra' tasks (like washing your car) for which he or she can earn money can teach her the satisfaction that comes from working for a goal.
Your child will also understand that the more work that's done, the more money he or she earns -- a valuable life lesson.
3. Value inculcation
One customer of mine has done brilliant 'value inculcation' in his son. He gives his son 30 coins of Rs 5 each. The kid needs one coin every day at the recess. So, 22 of them are precious. He has only eight to spare every month. Now when the kid says he wants a new tennis racket or new tennis shoes, my friend quotes a price of say '12 coins', it takes his son about three months to accumulate the same. And he treats each Rs 5 coin with far greater care than a 500 note.
4. Introduce financial jargon
Get your older children to understand words like saving, investing, donating, pension, financial goal setting -- they will thank you in the future.
5. Bank account
Opening a savings account, touring a bank vault, using the rupee-counting machine, comparing prices, and paying for items and receiving change are a few everyday ways to learn about money.
6. Summer jobs
Encourage your child when he or she tries entrepreneurial ventures like buying crackers in the wholesale and selling in retail, baby-sitting for the neighbours, or starting a dog-walking service.
There's no substitute for learning on the job.
7. Lead by example
Last, but not least, be mindful of how you talk about money. Do you complain about bills, fret about money, and always use negative terms about finances? Don't be surprised, then, if your kids feel negatively, too.
If you need some financial refreshing of your own, make full use of your moneycontrol.com. Getting yourself on the right financial track is the best lesson of all for your kids.
So, parents, remember that some lessons still start in the home. Managing money wisely is one of them.
The author is a financial domain trainer. He can be reached at pv.subramanyam@moneycontrol.com