Here are some simple tips that will help you teach your child the basics of a healthy debt-free lifestyle.
Kids are keen learners. They have the curiosity to explore the entire universe with their beautiful minds. The habits developed at a young age amongst children are the habits that eventually guide them towards making right decisions when they grow old. As parents, it is their duty to instill good habits in their children. One of the most common and indeed, the most important habit is to handle money. In this article, we identify some of the practices that can help parents educate their children regarding how to manage money from a very young age.
1. Pocket Money
First of all, parents should allot and give their kids a fixed sum of money. This will help their kids to develop a sense of how to control their expenses, provided that they have a limited amount to spend. It allows them to understand the realities of life in terms of how one seldom gets what he/she desires in life. They will always have to make a choice and must sacrifice one thing in return for another.
2. Savings as the first step
Savings might be difficult for kids initially but as they make progress, rewards can be given in order to encourage them. Targets can be set for the kids to save up to a certain amount if they want a big surprise at the end. A positive reinforcement always works with kids and rewards will encourage them more towards the savings activity. Parents may also use a savings account in a bank to give the activity a more formal structure. Kids are usually more responsive to such systems especially when they feel they are being treated as an ‘adult’.
3. Spending with responsibility
Spending is the next big element of budgeting. When it comes to spending and making a wise choice between what is their need and what can they give up, kids should also be able to recognize the idea of spending with responsibility. That is to spend for a good cause and give something out of their pockets to someone in need. This does not only let children understand budgeting but it also inculcates values such as ‘helping others and contributing to the society’.
4. Work extra to earn extra
It will take time for kids to understand how money is managed but until that time, there will be cases, very often, when kids will ask for more or extra money. Parents can translate such opportunity into teaching them an important lesson that everything has a price and nothing is free. Hence, if they want more money, they will have to put in effort for it. For instance, completing certain household chores for extra money.
5. Goal setting
These can vary in several different categories. While saving may be one of the goals, careful spending can be another. Parents should guide their children into setting small goals. For example, parents may tell their children that their goal will be to buy only one toy in two months. This can also be applied even if the children are not receiving any pocket money. It will give them a sense of purpose and a direction to make their choices wisely when it comes to choosing their toy i.e. they will exclude the unnecessary ones and will take the one that they desire the most. In the event where kids are given a pocket money, they should be guided to save money to buy things on their wish list.
6. Investments planning
While savings through pocket money, responsible spending and goal setting form the basis for managing money, kids should also understand the concept of investment planning. The idea of investment is to teach children how their money can grow. This can be done through savings accounts in banks etc. and the additional money earned can be used to fulfil more wishes.
7. You’re their role model
Kids observe a lot and the fact that they replicate most of the activities that their parents do makes it a lot easier to help kids develop good habits. If parents are telling their kids to do something, they should enact it first in front of their kids. This will motivate them to repeat the same action as well.