Money management for kids? Really? Yeah, they are growing up in a very high paced and global environment, where they would need to manage their every penny. This is not an easy task as you know it, so why not start early? Good habits die hard and this money management habit will really help them a lot in future. So let’s start!
Pocket money or monthly allowances can effectively be used as a method to make kids understand about money management. It will help kids learn about financial planning as below:
- Constraint on resource availability
Limited allowance or pocket money has to be effectively planned and applied for their various needs.
- Prioritizing the needs
The children understand and try to prioritize their money needs because there is a restriction on the allowance. For e.g. the kid will need to place either chocolate or ice cream first. And even toys may line up later.
- Expose them to decision making
When they are faced with any dilemma as to what to put as a priority, you can just encourage them to make a choice.
- Surplus or deficit management
When the children overspend the pocket money, then they may come to you for additional funds. At such times, you may inculcate budgeting habits which may stop them from spending on unnecessary things.
- Saving habit
Teach them how one rupee saved a day makes up Rs.30 at the end of the month. Seeing how much extra they would buy with such saved money may encourage saving habits.
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Piggy bank or bank account
If your child is below 10 years of age, you can always bring in a piggy bank for saving the money. This will encourage the kids to save more rather than spend impulsively on unnecessary items.
If your child is above 10 years of age, it is better if you introduce them to the banking system by opening a bank account in their name. For e.g. SBI has a specialized category of saving account for children above 10 years, which has no restriction with respect to minimum balance maintenance. Such accounts may be easily handled by the kids, which will introduce them to banking operations as well as inculcate saving habits (you can show the interest rate given by the bank to them so that additional income in the nature of interest will attract them to save more in the bank account).
Don’t feel guilty for saying no
There are some times when you need to refuse the demands or tantrums of your kids. There is no reason feeling guilty about it. Refusing expensive and recurrent unnecessary things like toys, clothes etc. will not make you a bad parent, but just the opposite. Your children will thank you for this when they grow up.
Teach them the importance of budgeting
While you are at it, teach them how to carry out budgeting by prioritizing the expenditure and recognizing necessary expenditure. Also, encourage them to earmark a particular amount of money for forthcoming bigger expenditure. This will also help root the saving habit in your children. Once they get used to budgeting, they will themselves find the ways to save more.
Shopping lets your decision making skills and bargaining power out. So next time, you make a trip to the local market or a shopping mall, please take your kids with you. They will understand the importance of price comparison and paying for its worth. Let them understand that expensive items are not necessarily better than others.
Also, they will be able to make their decision and make a choice when in the dilemma of facing a variety of alternatives. This will expose them to recognize, compare and select the best suited alternatives.
Be a role model yourself
Children are the best observers and they imitate their parents most of the time. This is both beneficial and disadvantageous in the sense that they will observe your behaviour and thinking pattern in financial matters and will replicate the same for them. So be careful while dealing with financial decision making matters when your kids are around. For e.g. If you make an impulsive shopping at a mall with your kids paying close attention to you, next time they are sure to demand expensive or unnecessary items from you.
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Financial matters just don’t concern your financial health but also social contribution. Your kids need to understand a valuable lesson of humanity, for which they should donate or make charity. This is an important lesson in life, where your kids will also learn the importance of sharing and human values. So encourage them to make charity or donate for the underprivileged.
Financial planning is a continuous process of learning and implementation. If you start with your kids at an early age, your kids will definitely grow up to be a financially responsible person. This will not only help them to deal with financial decision making but also tackle financial crisis at any age.