The realm of money is vast and features high on the ‘tough-to-explain-to-kids subjects’ list of most mothers, right after the topic of birds and bees.
Teaching children about finance is not a one off activity where you can sit them down and impart a couple of hours of sermon on the topic. It can be lot more fun than that. Just hark back to your childhood and take a leaf out of your mother’s books. After all, mother knows best.
Lesson # 1: Get Them Involved
The Challenge: The concept of finance is fairly wide. Reams can be written on the subject and volumes spoken on it but children are…well…just that…children. And it is not an easy task to hold their attention for long.
Mommy Mantra: It is very easy to draw the attention of kids towards something if you can get them involved and make them feel that they are assigned with a responsible task.
Blast from the Past: Chennai based CA Sudhir Nagesh shares his experiences. “Forty years ago when I was just six, my mother used to give me five rupees every month, quite a princely amount back then, with the understanding that I could spend it on whatever I wished, subject to a few conditions. The first was that I needed to inform her beforehand, on what I intended to spend it and get her approval. For instance, if I wanted to buy a pencil it was approved but if it was an expensive eraser or a fancy pencil box it was frowned upon. The second condition was that I should jot down my expenditure before close of the day in an ‘Accounts Book’ and show it to her. The third was that at any point of time she could call for the accounts book and the cash in my box had to tally with the balance as per the book. If any of the conditions were flouted then I was penalised half my next month’s pocket money.”
Modern Day Adaptation: The amount paid as pocket money may have changed but the need to keep track of it has not. Substitute the accounts book with a spreadsheet and teach your child how to enter the particulars in it. Besides teaching her the basics of bookkeeping, it will help her become accountable for the money entrusted to her.
Lesson No. 2: Cultivate Thrift
The Challenge: Most kids nowadays are victims of ‘excesses’. Augmentation in purchasing power among urban couples combined with a deep sense of guilt among parents of nuclear families at not spending enough time with their children leads them to substitute quality time with expensive toys.
Mommy Mantra: In matters of money it is a good idea to imbue the concept of ‘value of money’ into the minds of children at an early age and be made to seep deep down into their subconscious. Children who get everything their hearts desire seldom realize the value of those objects.
Blast from the Past: Cochin based HR manager and mother of two Rupa Jos recalls, “My mother was not a management guru or a behavioural expert but she knew enough about the power of motivation and incentives. When I started getting my pocket money at the age of ten, my mother introduced a rule which stipulated that if at the end of the month I saved some amount then she would put in an equivalent amount and that sum would be kept by her. Now this was a big motivation for a kid of my age. I started to think twice before spending. My spending was restricted to what was needed and not what I wanted.”
Modern Day Adaptation: Let your child know the difference between need based spending and want based spending. The importance of savings has to driven gradually into their minds. To further motivate them to save, gift them a colourful piggy bank and watch them ‘feed’ coins to Piggy zealously.
Lesson #3: Banking on it
The Challenge: Banking involves so many terms and technicalities it is enough to make your head reel, leave alone your child’s.
Mommy Mantra: Introduce them to this whole new world in phases and give them time to absorb the knowledge.
Blast from the Past: Rupa says, “I had never questioned my mother on where she had been keeping the money that I handed over to her as savings. One day when I was about 12 she called me and said that she had opened a children’s account for me and had been depositing the money there every month. She explained that it was a kind of extension of the accounts that I was maintaining except that in this case the bank did the work of maintaining the account book called the passbook. Saying this she took out and showed me a small book in which were entries made on various dates. She explained to me that each time I managed to save some money she added an identical amount and deposited it into that account. I went through the passbook and asked what the entry which read “Interest for the quarter ended…” was. That day I learnt that our savings can earn money for us when kept in bank instead of keeping it with ourselves. From then onwards, any cash that was received on festive occasions went straight into that account. I had learnt the importance of banking.”
Modern Day Adaptation: In most banks, passbooks have become passé and have been replaced by online banking. Guide your child when she is old enough through the various facets of online accounting. A word of warning though: never reveal the online password to them and always be there beside them whenever they access the account.
Lesson #4: Introduction to Investments
The Challenge: They may have become pros at saving but how does a parent take it to the next level?
Mommy Mantra: Children need to be taught that money saved grows faster if invested wisely.
Blast from the Past: “When the amount in the savings account reached Rs.50, my mom would go to the bank and open a Fixed Deposit account. The first time when I found out that the balance in my savings account had practically vanished I rushed to her in panic. She explained to me the concept of fixed deposits and told me that my money was safe and that this kind of deposits earned me a higher rate of interest than savings account. Needless to say, I was thrilled,” recalls Rupa.
Modern Day Adaptation: With the world of investments having opened up explain to the kids with the help of age appropriate jargon about the various instruments of investment like mutual funds, gold, bonds etc. Let them know why you are investing in a particular instrument and be ready to answer their queries. You will be surprised how much they can imbibe through such Q&A sessions.
Lesson #5: Earning on the go
The Challenge: Getting children to recognise the effort that goes into earning money is hard, to say the least.
Mommy Mantra: Introduce them to the ‘earn while you learn’ concept. Money obtained through hard work is always precious.
Blast from the Past: Sudhir remembers, “My mom made some more rules as I grew up. She made a list of activities that were to be performed. These included things like dusting the room on alternate days, keeping the bookshelf and shoe-rack neat and tidy, polishing shoes and so on. Once the list was made she made me an offer. If I could do all these things then I could earn another princely sum of Rs.5. I could collect the amount only if I demonstrated that I had done all the things all 30 days of the month. I accepted the offer and got down to work. The first two months I earned nothing as there was noticeable amount of shortfall in my performance. The third month however I started feeling disillusioned. We had a meeting to discuss matters. I negotiated. We agreed that 100% perfection could not be achieved so a small amount could be deducted for the shortfall. Soon I found some additional bucks regularly flowing into my kitty.”
Modern Day Adaptation: Look at this not only as a way of recognizing their diligence each time they run errands but as a means to introduce them to the concept of salary. Help them understand that earning money is not a magic trick but involves a lot of hard work and perseverance so that they appreciate that the latest gizmo did not just turn up in their closet, it was bought with their parents’ hard earned money.
“My mom killed many birds with one stone. She ensured that my spending was monitored and money was not squandered away. I learnt the value of thrift. A responsible spender was born in me. Most important of all, she taught me the distinction between WANT and NEED. This concept has helped me a lot in life and to this day my major buying decisions are based on needs and not on wants,” says Rupa gratefully.
“Thanks to my mother, financial discipline runs in my blood in matters of spending, savings and investments. I am a good negotiator where buying is concerned be it the humble potato from the roadside vendor or a swanky set of wheels,” Sudhir sums it up perfectly.
Go ahead and start implementing the pointers with your kids. Catch them young and watch their money grow!