Parenting Advice: Teaching Your Kids To Manage Money

Between pushy Indian parents and the super pushy media, there are a lot of things we teach our kids. However one thing is crystal clear, in the midst of all these vacations, exams and unit tests. Nobody is teaching your little darlings anything about money.

While our children’s teachers share responsibility for teaching them to read and write, they can’t do much to help our children develop basic financial literacy skills. Beyond simple addition and subtraction, there just isn’t enough time in the school day to do it all.

So what’s a concerned parent to do?

Take your child’s money-management education into your own hands, of course. Here’s how. It’s important to remember how your kids think when it comes to money. Most children are concrete thinkers who can show organized and logical thought but have a limited ability to think abstractly.

Preschool and elementary-aged kids will have trouble understanding abstract concepts like inflation, interest rates, and saving for a college education that is 12 years away. However, when my year old daughter tells me the following things, I realize that she understands some things about money:

Daughter: Dad, I need money to buy a gift for Mom

Self: Why don’t you use what is in your piggy bank?

Daughter: Dad, coins do not buy anything, I need notes!

At five, she understands that bread costs Rs 17, a car Rs 8 lakh and a house Rs 40 lakh, if only because I’ve constantly discussed money with her – factually and unemotionally. So, when I told her that we couldn’t buy the five-foot-tall teddy bear because we don’t have enough money, she was worried that we wouldn’t be able to buy bread. To her, ‘no money’ meant, quite literally, that our pockets were empty.

I should have said, ‘We choose not to spend money on that so we have enough money for other things we need to buy.’ Understanding the way your child thinks is the key to providing him or her with a quality education in money management.

Here are some ways to help your literal thinker learn about money:

A piggy bank is a great way for a preschooler to learn basic money management skills

1. Give them a piggy bank

Buy your preschooler, a piggy bank and give him or her a stack of coins to put in it. Ask your child to sort the coins in a number of different ways – shiny versus dull, big versus little. Although they won’t understand for a while, that a rupee saved today is worth more than a rupee saved when they’re 30 years old, they should get a touch and feel for money. I make my daughter pay the shopkeeper herself so that she understands the difference between different denominations of coins, small notes and big notes. Supervise your preschooler carefully, though, since, they tend to want to put objects in their mouths.

2. Give them pocket money or an allowance

For older children, establish an allowance so they can begin to make independent monetary decisions. Some folks would advocate linking the allowance to certain chores; I prefer establishing basic chores (e.g., making the bed, cleaning their own room, and setting the table) as something each person does because they are a part of a family and it is their job. Be very careful not to teach them to associate every task with payment so that they never ask, “How much will I get for looking after granny when she is unwell?”

However, giving your child ‘extra’ tasks (like washing your car) for which he or she can earn money can teach her the satisfaction that comes from working for a goal. Your child will understand that the more work gets done, the more money he or she earns – a valuable life lesson. It also helps them understand the importance of saving for goodies.

For example, I give my daughter Rs. 50 per month for generally being good and doing some non core work. So now when she sees something she knows I will not buy her, she observes, “I will have to wait for 11 months to buy this”. This is a very, very useful lesson to help them understand the difference between “price” and “value”.

3. Teach them the value of money

A customer of mine showed me a brilliant example of ‘value inculcation’ in his son. He gives his son 30 coins of Rs 5 each. The child needs one coin every day to buy food at recess. So, 22 of them are precious. He has only eight to spare every month.

Now when the he says he wants a new tennis racket or new tennis shoes, my friend lets him know it’ll take ‘12 coins’, and that it will take his son about three months to accumulate the money. Now he treats each Rs 5 coin with far greater care than a 500 note.

4. Introduce them to financial jargon

Teach your older children the meaning of words like saving, investing, donating, pension, financial goal setting – they will thank you for it in future.

5. Gift them a bank account

Opening a savings account, touring a bank vault, using the rupee-counting machine, comparing prices, and paying for items and receiving change are a few everyday ways to learn about money. My daughter was so thrilled when she got her account that she opened the bank letter – and quoted the “pin” number. What she actually read was the pin code on the cover! But it was a learning opportunity for me!

6. Encourage them to take a summer job

Encourage your children in small entrepreneurial ventures, like buying crackers in wholesale and selling in retail, baby-sitting for the neighbors, or starting a dog-walking service. There’s no substitute for learning on the job. I grew up in a Gujarati locality where everybody had a business, so finding my daughter a summer job will be easy for me. However it is not difficult if you’re not fussy.

7. Be a good role-model

Last, but not least, be mindful of how you talk about money. Do you complain about bills, fret about money, and always use negative terms about finances? Don’t be surprised, then, if your kids feel negatively, too.

If you need some financial refreshing of your own, visit my blog and benefit from some free financial advice with no pressure to buy anything. Getting yourself on the right financial track is the best lesson of all for your child. So, parents, remember that some lessons still start in the home. Managing money wisely is one of them.

This article first appeared on Moneycontrol.com

P. V. Subramanyam is the author of the book ‘Retire Rich: Invest Rs. 40 a day’ and writes for financial websites like moneycontrol.com, myiris.com and magazines. Visit his personal finance blog for more free tips and gyan.

As a Chartered Accountant, P. V. Subramanyam has worked as a trainer in the financial services sector. After a 20 year career in finance encompassing equity broking, mutual fund advising, corporate finance advising, personal financial planning, he turned to training individuals in managing their personal finances. He conducts financial planning workshops for mutual funds, insurance companies, banks, and other companies that want to help employees save and invest better, equipping smart people with the tools to get richer.

Additional resources:

The Nine Week Home School Entrepreneur Course – The first course of it’s kind to teach your teen not only how to start a business, but how to recognize opportunities in the marketplace AND develop an entrepreneurial mind. Teach your teen the basics of entrepreneurship so they can start a business, and earn high school credit.
Financial Wisdom Coloring Book – The Financial Wisdom Coloring Books for Kids and Parents is the perfect financial primer and activity book for kids ages 3-10. The left side is written to help the parents explain the important financial principle on the right which the kids are coloring.
Allowance Secrets – Offering money as an incentive for good behavior won’t earn you respect. Teach kids to earn their own money and budgeting will become a natural talent.