One of the finest quotes to stumble upon the internet in reference to financial lessons for children is “One of the greatest gifts you can give your kids is to be responsible empowered adults around money.” Most parents talk to their kids about savings at an early age imparting them with the wisdom of savings and its importance. Even then, most parents tend to think it’s best for the children to receive their financial education once they are of an appropriate age.
Indian parents tend to leave their children a lot of money as an inheritance, which contrary to their thinking, will only harm the children without any financial education. Children are known to be most receptive when they are between 5-12 years of age. So it would be advisable to start their financial education in these years itself, when it still is education and not a task they need to accomplish. As they grow, they can learn more complex concepts. This way the children will be prepared to take the big money decisions as adults. So this summer vacation when your children indulge in other extracurricular activities, make sure financial education is one of them too.
There are various ways to make your child financially independent, but here are a few things you can start with:
Importance of Savings: Encourage your kids to save from their pocket money. Explain to them the difference between want and need. Give them reasons to save money, for example, their mother's birthday present or shopping at Disney Land can serve as long term goals. You can also reward your kids for saving a certain amount of money in a given time which acts as targets. With these targets, they will also learn to treat all money with equal respect. Creating a colorful sheet for them to track their expenditure, a kids version of Passbook is another way for them to get in habits of tracking their expenses.
Banking: The best way to educate your kids about banking and banking tools is by opening an account on their name. Take them along with you in a bank to teach them how to deposit the money. Familiarise them to banking tools at an early age like a cheque, cheque book, passbook, ATM card, and account statements. Don’t shy away from letting your child withdrawing money from an ATM, let them have a new experience while learning the basic financial lessons. Children often don't understand the difference between a debit and a credit card. Another great way to teach them a difference is to demonstrate a purchase from both cards and explaining the intensity and procedure of credit card when the statement arrives and hefty penalties if you don't pay the credit card bill.
Insurance and Investments: Talk to your kids about investments, how they work, and why you need them. Help them understand basic insurance plans and the plans and policies you have taken. This will give them an objective view of which insurance plan is a good purchase.
Documents: Show them a pan card and what it looks like. You can also apply for a child pan card to let them know the importance of it and how it will help them in the future. Explaining the importance of tax and is an integral part of financial education.
A guide to financial education will help your children be a responsible citizen as well as a responsible individual. It will secure their future and it will better equip them to take smart money decisions. In Bob Talbert’s words. “Teaching kids to count is fine, but teaching them what counts is best.”
Mr. Amar Pandit, CFA, Founder of HappynessFactory.in