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Raising children to be financially responsible

Actions speak louder than words and financial responsibility cannot be taught but is imbibed over the growing up years. (Photo: iStockphoto)
Actions speak louder than words and financial responsibility cannot be taught but is imbibed over the growing up years. (Photo: iStockphoto)

Summary

  • Children emulate parent’s savings, spending and borrowing actions.

My heart swelled with pride on hearing my 18-year old’s budgeting tricks in college. Being a financial educator, it was so fulfilling to note that my views on financial independence had actually had an impact on my daughter. In this age of abundance and consumerism, getting children to be financially responsible is not easy. Here are some things that worked in my case.

Posturing makes a big difference. Children emulate parent’s savings, spending and borrowing actions. Actions speak louder than words and financial responsibility cannot be taught but is imbibed over the growing up years. The start of this journey is at the toddler stage, wherein one has to say no more than a ‘yes’. Even if they can afford it all, parents need to stop giving in to all the demands of the child. The current generation of parents are making their children too entitled by giving them everything they want right from birth.

As children get to middle school age, peer pressure kicks in, in a big way. There are so many comparisons on things like, the car owned by parents, vacations, etc. Everybody around feeds into this—family, friends and even the media, so much so that an advertisement of a travel portal actually had a child berating the parent for not being cool for vacationing at exotic destinations.

Spending habits are typically imbibed between 8-14 years, when there needs to be a balance on spending. Assess what are the expenses that might seem frivolous but are needed and those which you can compromise on. While I spent on holidays, I did simple birthday parties at home versus the mini wedding like celebrations one sees these days! My children could make their own choices while shopping but not without seeing the price tags. Over time, they understood what was reasonable and overpriced expenditure. The money received on birthdays and festivals was partially allowed to be spent and the rest was invested, so they balance enjoyment with prudence. Getting kids to reuse or recycle things also brings in financial consciousness. Every small action matters!

For children in high school, the focus is on further studies. Indian parents do not like to involve their wards in discussions regarding higher education expenses. It is necessary to engage children in these matters so that they understand the value of the hard-earned money of parents and make prudent choices on colleges basis performance, potential and affordability.

College is the best time of your life or so they say! It is also the time parents should let kids take financial decisions. Give them a budget and let them buy whatever they need for college from that pool. This will get them to distinguish between essential purchases and teach them to compromise—for example, an earpod which is seen as an essential by a teen needn’t be from the most expensive brand. I hear too many parents allowing their teens unlimited spending because they can afford it and it is the time for kids to have fun. But fun can be had within a budget too and this helps in building important life skills such as decision making and problem solving. Buying a ebook over hard cover books or using cabs only when absolutely necessary are some trade-offs my teen did to stay within the budget.

Encourage children to maintain an expenses sheet and let them decide how they want to use their monthly allowance. I have told my daughter that she can use her savings to buy something expensive on her birthday. A large discretionary expense on an occasion can make the purchase special and valued. While I have given my daughter an add-on credit card, she has kept it for emergencies and only uses her debit card everywhere so that she spends only what she actually has. Fostering financial responsibly in children is an investment that can teach them the importance of financial stability and will be a lifelong trait. Give this topic importance and talk about the importance of not being dependent on anybody regularly so that it becomes part of their value system. Happy Children’s Day!

Mrin Agarwal is founder-director, Finsafe India.

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