Teaching money management skills to children

Teaching children about money management is one of the biggest challenges that parents face today and one of the most important skills they have to inculcate in the younger generation. Children who understand the value of money are less prone to be spoiled brats and more likely to grow up into responsible adults.

Children often take money for granted. Although they are smart enough to know that there are no such things as money growing trees, they think that their mom’s purse or dad’s wallet has an endless supply of it. And in case their parents ever run out of cash, all they need is to visit one of the innumerable ATM machines scattered all over the country, whip out a plastic card and press a few buttons to replenish the depleted funds.

Advertisements in print and electronic media do not help either. Most banking ads bombard young, susceptible minds with the message that the right sort of credit/debit card can solve all your financial woes and one can splurge without a care in the world. It is hardly a surprise then that today children are reckless when it comes to money and parents have little idea on how to curb their expenditure.

The best time to begin teaching the basics of economy to children is during their childhood. This is because young children are impressionable and they are quick to learn and adopt good and bad habits. Once poor or careless money habits are in place, they are very difficult to change.

Talk to them about money

It is very important for children to know how money is earned and that parents have a limited amount of money to spend every month. They should also be made to understand that money is spent on important things like utility bills, education, food and health and how every bit saved can be utilized for their better future.

Help them differentiate between “wants” and “needs”

Teaching your child to differentiate between his wants and needs is a big challenge. The profusion of attractions in markets, television ads, peer pressure and the desire to show off among friends can be very motivating factors in your child to demand expensive stuff. The best way to deal with these demands is to be firm and communicative.

Tell your child that having a branded school bag does not mean better grades nor would a costly watch show a different time. Teach them to find satisfaction in things that they own instead of hankering after those which are beyond your means or without practical purpose. Never spoil your child with expensive stuff even if you can afford to. Children outgrow most things or become bored quickly. If their every new demand is met instantly, it gives them no appreciation for their belongings.

Help them make good friends

If your child has a tendency to get impressed by riches or tries to make friends with those kids only who have “cool stuff”, this is usually a sign of low self- confidence. This inclination can snowball into serious matters once your child gets into his teens so try to bolster his self-esteem.  Direct him to recognize and value good things in other children irrespective of their parents’ financial situation. Encourage them to make friends with those kids who are goodnatured and excel in school activities rather than set money as a benchmark for friendship.

Give an allowance

One of the best ways to teach kids about money management is to give them an allowance to manage. Younger kids should be given a small allowance on a weekly basis while older kids should have it once a month. Once given the responsibility of handling money, they should be given the independence of spending it too.  They might make mistakes initially or spend it on frivolous things but very soon they’ll learn to make better decisions.

Teach them to save

If children want to buy something badly, they should be taught to save up for it. Having a money box helps them to put away a little bit of money at a time for their goal. This will teach children not only the concept of saving but also give them valuable lessons in patience, negotiations and forming partnerships with siblings. Older children can have a savings account in their name where money from  special occasions can be deposited. They should also be taught how to write a check, make deposits or withdraw money from a bank. Once children see how money accumulates and could be put to good use, they learn to be financially savvy.

Be good role models

The key to success in teaching your child about money management is to be an effective role model yourself. Parents should display restraint when it comes to spending and show good sense about saving money. Children should see them make a budget, comparison-shop and take sensible decisions regarding savings and investments. Actions speak louder than words so it helps if parents are conscientious about reducing household bills by conserving energy, going bargain hunting and being thrifty in general.

A wise person once said, “Three groups spend other people’s money: Thieves, politicians and your children.” While not much can be done about thieves and politicians once they have got their hands on our money, we can ensure that our children value and respect our hard earned cash by teaching them good ethics and sound financial sense.