Put in the work needed to teach your children financial responsibility

By beginning to train your child early, you can inculcate the habit of saving in her

American orator Frederick Douglas said: "It is easier to build strong children than to repair broken men." This holds true, especially for money skills. 
 

Today, conversations on school playgrounds are often not about who got better marks or won the 100-metre dash. Instead, they revolve around more materialistic subjects: Who has the latest Xbox? Who vacationed at a fancier foreign location? With children getting introduced to money and what it can buy at an earlier age, inculcating the right money values and practices from an early age has become all the more important.  

However, even today, parents do not take up this responsibility as proactively as they should. Says Chitra Iyer, chief executive officer, My Financial Advisor: "While parents focus on teaching their children the right values, many still shy away from discussing money." What then is the right age to introduce kids to the concept of money? According to Pankaj Mathpal, a Mumbai-based certified financial planner, "Pre-teen is a good time to start."

Children begin to understand the denominations of currency notes around the age of six. That's a good time to introduce them to money-related concepts. Says Iyer: "Don't hold specific money-related lessons. Talk about these concepts during the course of your time spent together. At an ATM, you could let the child punch in the PIN and then talk about what the machine does. On a visit to a bank, you could explain how it functions." Begin by showing your child how to save a coin or two in a piggy bank. Give small amounts as a bonus when she is able to save a particular amount.  

The training should move to a higher level when your child enters the pre-teen years of eight to 12, and her allowance increases. Says Iyer: "Instead of giving a need-based amount, give the child a fixed amount at frequent intervals and ask her to save and spend as she chooses to. While spending, let her make her choices. Unless children make mistakes, they won't learn. It is better that they should make mistakes at an early age rather than later."

By the time the child is in his or her teens, the pocket money would have increased. Mathpal says, "The amount of pocket money you give to your child is for you to decide. The more important thing is to impart the skills for managing that money. Teach the concept of budgeting when the child is in the mid to late teens." At this age, you may introduce her to Excel, where she can maintain her financial records in neat rows and columns. Open a kid's savings bank account, which will give her access to a chequebook, a limited-spend debit card, and so on. These accounts allow parents to keep an eye on all the transactions the kid carries out. In the teens, the child can even pay bills, such as those for her mobile. 

Another recommended method is to make your child earn money instead of just doling it out to her. Says Mathpal: "Make them earn the money, either by asking them to do chores in the house or as a reward for getting better grades." This, he says, will make them appreciate the dignity of labour and the importance of money.   

When a budget is set, there should be consequences for not adhering to it. Says Mathpal: "If the funds you gave were for the month, and the child spends it in 15 days, do not give her more. This will teach the child the importance of budgeting and restraint."

Finally, make use of the financial literacy material available for kids, such as educational videos on the Reserve Bank of India's website, money-themed games and movies, kids' financial workshops, and so on.   

Money matters 

• Teaching must be suited to age    
• Start by giving your child a piggy bank at six 
• Set small saving goals, and reward with bonus money when the child meets them 
• Open a kid's saving account with debit card by 15
• Introduce the child to the concept of budgeting
• Make use of financial board games, movies and kids' financial workshops
• Set the right example. You can't teach a teenaged child the significance of saving if you are drowning in credit card debt