Many parents today tend to leave out cash concepts when they put together early knowledge sessions for their children, which is unfortunate because there are plenty of opportunities to teach money lessons to young ones. I am among those parents who feel that to raise financially savvy kids, it is important to expose them to money management early in life. The sooner they are introduced to concepts such as savings, interest, prioritization, et cetera, the faster they will learn to value the hard work their parents put in to earn the moolah.
A fundamental step towards initiating money matters with your little ones is to involve your children with numbers early in life. If nothing else, it will increase their ability to deal proficiently with numbers later. The next step is to introduce the notion of money as a tool for barter. In history, too, it is widely known that money evolved from a barter mechanism to finally become a tool for exchange.
By adopting the training tools discussed below, you can help your children understand basic issues such as differentiation of price (or value), and how to make independent decisions where money is concerned.
At five years, evoking numerical responses to simple questions such as “How many wheels does daddy’s car have?” or “How many brothers and sisters have you got?”, can help develop keenness for numbers. It also helps a child to differentiate between various products and things, and to understand how, for example, a scooter has fewer wheels than a car.
But, as parents, do not pass value judgements on what is good or bad. The focus should be merely on building a numeric association and on helping the child to understand the concept of less and more.
For slightly older kids (seven to nine years), a way to spice up the learning process is to introduce ‘coupons’ as token money. They may be given coupons as their monthly salary for lending a helping hand in the house. The coupons can be linked directly to the effort put in by the children. For example, if your child helps you wash the car every weekend, he can be given 10 coupons a month. While if he does something more strenuous such as helping his grandfather in the kitchen garden, his salary could be increased to 15 coupons. Similarly, these coupons can be withheld as penalty in case of bad behaviour by the child.
Game play: Chess introduces the concept of saving
It is a good idea to introduce the concept of a bank as early as possible (five years is perfect), but it need not be via a cumbersome visit to the nearest branch. Designate a corner of the house, such as their grandmother’s cupboard, as a home bank. Piggy banks can also serve the same purpose. The idea should be to get kindergarteners and junior schoolchildren to learn to set aside money or ‘coupons’ as savings. For children who take well to numbers, you can gradually introduce the idea of savings versus expenditure. One way I have introduced the concept of saving for my son, Saahas, is to play chess with him. We attach a value to every piece on the board (a bishop has three points, the queen 10), and in this way he learns the importance of collecting points (saving) to win the game.
This is the time to start extrapolating their coupons to real money. Begin by discussing the concept of a monthly household budget. Apprise your kids of the impact their demands and purchases have on the monthly budget. For example, let them see for themselves that the newest Playstation in the market is twice the monthly household budget, and hence cannot be bought “just like that”. They need to understand that money has to be allocated for it by saving or cutting out some other expense.
Involving children in the planning process of a household budget can further strengthen their concept of savings. Let them, for instance, plan the cost of their birthday party. Then, they will see for themselves how calling every kid in the colony means cutting back on certain items so that the party remains within budget.
This is also the time to take them on their first “serious” visit to a bank and expose them to cash and transactions. Another thing you could do is to introduce the idea of reimbursement of expenses beyond the budget against an expense statement.
By the time your child enters the teenage years, he or she can begin understanding the importance of education and its related costs, responsibilities that he or she may have to take on in the future, and similar concepts.
The outcome of this kind of learning at this stage should be an understanding of why one needs to manage money, more than how to spend it. The next logical step is to help them select ways to invest their savings.
Nitin Jain is the managing director of Infinity Business School, New Delhi
(Write to email@example.com)