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How to inculcate financial wisdom in your children

How to inculcate financial wisdom in your children

How to inculcate financial wisdom in your children
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By CNBC-TV18 Oct 27, 2021 12:56:58 PM IST (Updated)

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We are living in a materialistic and consumerist world. When parents themselves have little control over their spending habits, it isn't easy to teach kids the importance of money and its accountability. Our experiences and thought processes while growing up play a significant role in how we manage our finances. So, it makes sense to teach good financial habits in children early. Here are a few ways to inculcate financial discipline in your child.

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Introduce the concept of budgeting/accounting
For every penny you give them as an allowance, ask your child to keep track of how they spent it or where they plan to spend it. Such habits go a long way in helping them manage their finances later in life.
Encourage children to use cash for small purchases
With plastic money and digital payment apps becoming convenient ways to shop, children are unaware of the actual money transaction. Allow them to use cash when you visit a store to buy chocolates, juice and other small items. They will then realise the concept of the exchange of money for goods or services.
Make them understand price differences
When shopping in a supermarket with your children, pick up two similar chocolates – one priced higher and the other priced lower. Explain to them that to buy the expensive one, they need to save from their allowance.
Set rules
Many parents these days have a habit of overindulging in their kids by giving in to all their demands. It is essential to make your child realise the difference between needs and wants to value money. If a child insists on something that is a ‘want’, make the child contribute to it with their pocket money. For instance, your daughter wants the latest Barbie set. Instead of agreeing to buy the doll instantly, devise a plan with her of how long she would need to save from her pocket money to purchase it. Buying the toy from own money will give her a sense of satisfaction and teach her the habit of saving.
Inculcate financial independence
It could be a good idea to open a bank account for children. This will help them understand the value of gifts that they would have received from relatives. Children should also be taught to check their bank account periodically and see how the amount increases with interest. This will instil the habit to save and spend judiciously from an early age.
Lead by example
The adage ‘the apple doesn’t fall far from the tree’ holds true when teaching your child about finance. You are the role model for your child. Watch your spending behaviour in front of them as they will pick up from what you do. If you are mindful about your purchases and responsible with your money, they will learn the same from you.
Keep these tips in mind to set a strong foundation for your children towards healthy financial habits. Giving them an early head start will turn them into responsible and wise adults.
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