At Money Aware, a workshop for children in the 10-12 age group that I conducted recently in Bangalore, the idea was to introduce children to the basic concepts: earning, spending, investing and planning.
Bank with piggy: Help your child understand the importance of saving money.
Consider this simple equation: Earnings minus spending equals savings. Savings plus a plan equals investments.
Most children were aware of the spending aspect and firmly believed that controlling spending meant having more money in hand. The concept of earnings was not so clear. In another exercise designed to gauge their attitude to expenses and costs, most children knew the price of everything from an egg to a Shatabdi ticket, but when it came to allocation of funds, that most important investment activity, most had no idea how to deal with it.
Children nowadays recognize the power of money. However, the scale varies, and much of it depends on parents and how they deal with cash.
In her book, Stop Fighting About Money, Corinne Sweet says that every child grows up with her own “emotional money baggage” (EMB). This is a set of beliefs and values that a child develops by observing how her parents earn and spend money. As EMB takes shape, every young child acquires a distinct “money pattern”, which is either a mirror image of what the parent does or a contra-trait developed out of revulsion or rebellion.
These are some of the most common money patterns you might identify with, and while you may not strictly fit into any one of these categories, you will have some of the traits of each category.
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Planners: For you, money means business and you have well-defined boundaries as far as expenses go.
Hoarders: You are careful with money and prefer to save. You’re a tough bargainer. Like Planners, you may have been exposed to either financial chaos or financial stringency when you were young.
Spenders: You live for the moment and spend your way out of trouble. You are unlikely to have savings and are forever in debt.
Gold-diggers: You believe that the world owes you a living and are never willing to own up to the fact that your survival is your responsibility.
Doormats: You are gullible about money and are a prime target for Gold-diggers.
Ostriches: You fear confronting money issues and hope your cash problems will disappear. Your favourite phrase: It’ll sort itself out.
How you manage your money today will affect your child’s saving, spending and investing patterns in the years to come. It is true that what happens in the animal kingdom happens with humans too. “Imprinting” is the biological term that describes why baby ducks instinctively follow the first moving object they see. If it is their mother (most likely), then they end up mimicking everything mom does.
Ditto for money matters. Most children think the rules that their mothers follow are sacrosanct. So, all mothers out there: Start driving harder bargains at Linking Road, Commercial Street and Chandni Chowk. Your child is watching, and in all likelihood will follow your example.
If you are not smart about money, it is possible that your children will see money patterns they are uncomfortable with or associate with failure, and rebel. So a Spender’s son may turn out to be a Planner, especially if he has friends who are careful with money. Similarly, parents who often splurge on goodies for their children because they are unable to spend quality time with them may just end up producing a generation of Spenders who believe in throwing cash at all their problems.
So, how should parents behave in order to set a good precedent for their children? And what can they do in order to inspire the right approach to earning and spending in young ones? These pointers can help:
u It is better to be frugal than be a spendthrift. Delaying gratification is an important life skill that children have to learn. Being prudent with money is one way of driving home the point.
u If you are wealthy, please make it known to your children that it was a balanced approach to money that contributed to your success. Let them understand that accomplishments in education and hard work at office made it possible for you to succeed.
u You cannot talk to a child about saving money and then splurge at every sale that comes up. Children recognize instances when there is all talk and no walk. Don’t have two sets of rules—one for you and another for your child—as far as expenses are concerned.
u Always acknowledge role models who were very responsible with wealth. And remember, it never helps to decry the wealthy unnecessarily. After all, most of us aspire to have fortunes like theirs.
u Get your children to appreciate the risk-reward equation, which is the key to creating and preserving wealth.
u Buy Monopoly. It is a wonderful way to explain investing concepts to your children.
Harish Rao is a Bangalore-based money management coach who blogs at http://blogs.livemint.com/simpleequation
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