If you ask a 5 year old “where the money comes from”, most likely his response will be ATM or Purse. The kid is only saying what he has observed. He does not see a correlation that you invest your body and time to earn decent living for them.
Children today are more demanding and inquisitive. You can see in their behavior. They will blackmail you for an ice-cream for doing homework, they will roll all tears for a toy or a doll and make sure that you purchase it out of embarrassment. They want multiple dresses, stationary, shoes and everything moment they see it. And if you say NO, deep down they will start thinking “Are we poor?” or “”do my parents love me or not”?Image courtesy of Stuart Miles at FreeDigitalPhotos.net
Let’s see what and when to tell a child about money.
Age 5-7 Aim to teach: What is money? How his Daddy gets money to home.
Lesson 1: Ask him what is money? Show him the notes and coins of all denominations and tell him that everything has a cost which is money. The ice cream, the dress, the school, the van, the maggie, the fruits, the vehicle, the petrol, the fan, the electricity, the band aid, the water park etc. etc. so money is through which goods and serviced are exchanged. We cannot make school, diary milk at home. So money is important.
Lesson 2:Ask kid does he/she misses you when you go to office? Tell them you miss them too but in order to earn money you need to go to office and work hard. You work for full month then you get some money which will be for entire month and this is the money office stores in the ATM which you can withdraw when it is needed. Show him that it is not the ATM which gives money, but it is the hard work and time you or your spouse devotes towards work. Instilling the relation between hard work and money is the crux.
Age 7-9 Aim to teach: Value of Savings & Investments
Lesson 3: This is the time when you can give some cash to kid to handle on own. You can give him a pocket money and tell him to that if he wants a picnic out on weekend he has to contribute. Or ask him what he wants… suppose he says a tablet, tell him that he needs to save X amount for Y months to get the tablet. When you shop something tell him to count and pay. Let him calculate balance and denominations of notes to pay. This is not one time but a routine.
Lesson 4:This is the time you sit with your kid and teach him about daily or routine expenses. You tell him that grocery is routine but vacation or expenses for higher education are not. Show him that you are saving for these long term goals. Tell him the difference between saving and investments. Explain him the non-technical way the concept of interest and accumulation (the grasshopper and the ant story). Share stories where people started savingand became self-reliant by reaching their goals without difficulty.
Age 9-13 Aim to teach: Basic concepts of Investments &Debt
Lesson 5: Teach them the power of compounding and interest concept in simple way. Tell them about savings bank account, recurring deposit and fixed deposit. Tell them how these avenues help to build corpus for future use.
Lesson 6: Teach them dangers of debt. Show them how home loan and credit card works. Correlate method of savings and debt. Tell them how you contributed maximum form your savings to lower your loan amount and pay less EMIs. Do role play by giving them small personal loan for their need and deduct EMIs from the pocket money.
And before you teach….
1) Show respect for money in your financial behavior.
2) Make wise investments & purchase decisions.
3) Put some time to educate yourself with financial concepts.
4) Lead in the eyes of your kid by setting examples.
5) Be patient with kids. Do not expect Warren Bufffet or Benjamin Graham attitude from them on day 1.
Also Check Infographics – 10 Lessons to teach your kids about money
Being a parent I am eager to learn what new I can teach my kid and how? Do share your stories- how you tackle your kid or may be how your parents tackled you? Waiting for your comments.