Money management is an integral part of life. Yet we often fail to educate our children about finances or the need to regulate the use of money. Disciplined spending habits do not occur overnight. As with any other skill or habit it needs to be inculcated in the daily habits and encouraged on a regular basis for the seed of disciplined spending to take root.
There is a compelling case for educating children about money management and here are some ways on how you can go about it:
- Start by teaching children about the difference between needs and wants. Children often cannot differentiate between what is necessary and what is unnecessary. The primary lesson they need to be taught is that our wants are infinite, but the resources available to us are finite. The knowledge of how to rank wants in terms of priority and allocate the available resources towards meeting those wants is the basis of financial discipline. When children are given the responsibility of doing such tasks, they get a firsthand knowledge of the consequences of their actions and this serves as a reminder to choose your options wisely.
- The next step would be to let children handle the responsibility of dealing with cash. While theory is good, it is practical sessions that often help in cementing the lesson. Children need to be given the responsibility of handling cash by themselves if they are to truly understand how money works in society. The idea would be to begin by giving them small amounts of money to spend on purchases and then get them to keep track of the transactions they are carrying out. This would also be a good way of making them aware about the purchasing power of the coin.
- Instill a strong habit of saving in children, as this would be the foundation of their behavior in future. Instant gratification of needs is a fine thing but it does not aid in making prudent financial choices. Children need to learn early on that money is not just meant to be spent, but it is meant to be saved as well. The concept of saving for a rainy day or having some funds to fall back on is a must, as this promotes a feeling of independence. Saving gives us a firsthand example of how to prepare a plan and execute it. It is goal oriented behavior that helps in providing a sense of security.
- Children are more likely to follow examples rather than listen to advice. Hence, the behavior that we adults indulge in going to be the indicator of how they would behave in future. We cannot glorify the benefits of financial discipline if we do not follow the same principles in our day to day life. When they see the adults in their life following a meticulous financial plan and not deviating from it, they would get the message that this is possible in life and thus would be further encouraged to adopt such practices as part of their behavior pattern.
We often come across situations where adults are not able to handle finances properly or engage in responsible financial behavior. We should be careful with money because it has to be earned and is not available in unlimited supply. Yet we hesitate to promote financial literacy amongst children. It’s a bit like handing over the keys of a vehicle to an adult and asking them to drive without the proper driving lessons. If the seeds of good habits are planted in the hearts of the child, it will bear fruit as the fortunes of the adult.
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