Last week I went to the market with my six years old daughter. She was continuously pestering me to buy something or other which I didn’t want to purchase. So I told her that I don’t have money to buy, she immediately advised me to go to ATM and take out the money. For her the money comes automatically in few seconds from these Automatic Teller Machines. That make me realized that for the kids the value of money is the only efforts we make to take it out from ATMs, not how much work we put in to actually get the money in these ATMs.
By the age of three, most kids comprehend that money can be exchanged for something they want. Kids see you pull out your wallet to pay for things such as food, toys and books etc. Because children are exposed to this frequent exchange of money for stuff, they understand at a very young age that money can be used to buy things they want, what they might not understand is what exactly money is and how it ends up in your wallet.
It takes few seconds to purchase all these goods but it takes months to earn the money spent to fulfill our child’s desires. Hence, it is very important that children are aware about the value of money and moreover, feel confident while handling finances by themselves. Here are few useful ways that parents/guardian/techers can employ to make them more aware of money and its uses:
1. What is Money?
Point out to the child that money comes in all shapes and sizes and is used to pay for everything. Most countries have two forms of money: coins that are made from metals and notes that are made from paper. In India, we have a variety of coins (50 Paisa, 1 Rupee, 2 Rupees, 5 Rupees & 10 Rupees etc,) and Rupee Notes, and each is worth a different amount. It is helpful for children to see all the different coins and notes so they can compare sizes, shapes and colors. Learning the names and values of each coin and bill takes practice. It’s okay to simply explain to small kids that each coin and note has a special name and is worth a certain amount of money.
While the concept of credit may be little complicated for small kids, we can still explain them that people can buy things even if they don’t have coins and rupee notes with them. People also use credit cards, debit cards, mobile wallet and cheques to pay for things. It is important to help the children understand, however, that credit cards and cheques are not free money and that we have to "pay back" the money with real coins and notes that we have worked to earn.
2. Make them learn the value of Money:
children should know how the money is earned. This does not mean that children should quit studies and do a full-time job. But we can guide them to make a little income in various ways. For example, if my daughter makes brilliant colour paintings on clothes or accessories, she can hold a small exhibition at home/your neighborhoods/society during summer holidays. Or a group of youngsters can organize a society sale selling items they don’t need at discounted prices. Earning money on their own is one of the best ways by which kids understand the rupee’s worth. Further we can give some weekly pocket money and ask them to save and use it properly as explained here.
3. Giving Allowances & Teaching Saving Habit
We can give certain allowance to our child if they do certain housework or chores. But we have to be consistent on this if allowance is not tied to chores, we should not withhold payment because they didn’t finish their milk etc.. If your child is expected to "earn" his or her allowance by doing chores, don’t pay them - or pay them a pro-rated amount - if they do not complete all their jobs on time.
Another play we can use it to Create three money boxes – each labeled “Saving,” “Spending” or “Sharing.” Every time child receives money, whether for doing chores or from a birthday, divide that money equally among the jars. Let him/ her use the spending jar for small purchases, like candy or stickers. Money in the sharing jar can go to donate to a friend’s cause. The saving jar should be for more expensive items but not that expensive that it can’t be attained in reasonable time. Also to motivate them further we can give them some bonus money if they have saved certain amount of money. Let’s say If my daughter wants to buy a Barbie Doll game of Rs. 1000/- I tell her first you save Rs. 800/- and then I will give you a bonus of Rs. 200/- and then you can buy it.
4. Teach them to operate the Bank Accounts:
The next step is to open a savings account for your child. Teach him/her banking procedures such as withdrawing/depositing cash, issuing cheques or net banking etc. Take kids to the bank every month so that they are familiar with the surroundings. Encourage them to put their pocket money saved in the bank. Youngsters are quick at grasping digital knowledge and will be well-versed with the online processes in no time. If you have invested money in your child’s name and receive interest/dividend, let them go and check that it is duly deposited in the account. An independent savings account will instill a habit of saving and give adolescents a sense of financial independence as well.
5. Let them take few Decisions
We should include our child in some financial decisions. For instance, explain, “The reason I chose the unbranded sugar or Rice is that it costs Rs. 10/- less than the branded one. Or talk about deals, such as buying everyday staples like flour, rice, pulses, edible oils etc in bulk to get a cheaper per-item price.
Give her some money, like Rs. 100/-, in a supermarket and have her make choices about what fruit, toothpaste, biscuit to buy, within the parameters of what you need, to give them the experience of making choices with money.
When you’re shopping, talk aloud about how you’re making your financial decisions as a grown-up, asking questions like, “Is this something we really, really need? Or can we skip it this week since we’re going out to dinner?” “Can I borrow it?” “Would it cost less somewhere else? Could we go to discount store and get two of these instead of one?”
6. Discuss financial goals:
Make children a part of the financial planning process. Make them practically understand the value for money tell them that you can buy your toys/other items when you are able to save that much money by not wasting it on unnecessary items. If you wish to go to Disneyland next year, set a goal and explain them how the family plans to set aside funds for the vacation. This will help them understand how money can be saved by cutting down unnecessary expenses.
7. Inculcate the habit of sharing/giving:
Speak to your child and understand if he cares for animals or wants to help the needy. Persuade teenagers to donate part of their savings to their preferred cause even if it’s a small amount. Charity is not just an effective financial lesson but it also imparts social responsibility and sharing from haves to don’t have.
Implementing these methods at an early age will go a long way in teaching your kids the importance of money and how to spend every rupee wisely.
8. Teaching how money makes more money
Describe compound interest to the kids (age 10-12) and explain them how money attracts more money if it is saved properly. For example, telling her that if you save Rs. 100/- every year starting at age 10, you’d have Rs. 53,777 by age 60, but if you start at age 35, you’ll only have Rs. 7,100 by age 60.”
Guide them to set a longer-term goal for something more expensive (like her own I-Pad) than the toys she may have been saving for. “Those sorts of tradeoffs, called opportunity costs — what are the things you’re giving up to save money — is a very useful thing to talk about. At this age, kids are trying to not save because they want to buy stuff, but thinking of what long-term goals are and what they’re having to give up shows that it’s a good decision,”. For example, if your daughter has a habit of buying candies or other eatables after school every day, she may decide she’d rather put that money to buy her own I-Pad.
Many study shows that People with a high degree of financial literacy are more likely to make plans for retirement, and those who do plan for retirement have more than twice the wealth of people who do not plan. People who are less financially literate tend to accumulate less wealth, borrow more, pay more in financial product fees and are less likely to invest or know the terms of their mortgages or other loans.
Money is an exciting topic for kids, and many are eager to learn about earning, spending and saving money, even at a very young age. Most young children are ready to learn the basic concepts explained above: however we have to Keep in mind that much of the results will come by repetition, experience and practice.
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