Teach Good Money Habits to Your Children

In this Digital World, We can do everything from mobile to insurance bought online, with digital money, kids tend to believe that everything can be bought at a click of a button.

All you need, to buy anything, is either a mobile phone or a laptop. This poses serious dangers to kids’ thought processes as they go on to assume that there are unlimited resources at their disposal and that they can live beyond their means*.

In these different times, how do we make our kids aware of the function of Money, about the fact that there are only limited resources available and their parents can’t buy everything kids want?

More importantly, how to make them financially literate so that they can handle Money and can live within their means when they grow up…!!

So, how to address this Elephant in the room when many parents feel uncomfortable broaching this subject with their kids?

Learn -> Save -> Transfer -> Invest/Consume -> Repeat

Step 1: Learn the function of money

1. Making kids aware that there is something called money
2. Show them the color of the money
3. Show them notes and coins of different denominations
4. Tell them that you need money to buy stuff
5. Tell them the source of money, where it comes from i.e. job (depending on the age of your kids)
6. This will help kids understand why their parents work
7. Try to transact in cash whenever you are out with your kid shopping
8. It will help them understand that we need to give money in return to buy something
9. It makes difference when the tangible form of money (cash and not UPI) is being traded for the goods or services
10. A lesson they will remember for a long time i.e. lifecycle of money from earning to spending
11. See if kids can handover the cash to the cashier at a grocery store by themselves
12. This will make them believe in the process when they see that they can only get stuff once money is passed on to the cashier
13. Doing it by your (DIY) inculcates long-lasting behavior

Step 2: Create Saving Habit

1. Gift them a piggy bank
2. See if you can gift them an ATM looks like a piggy bank, just for the fun. This one gobbles the notes with an ATM-like sound [please have a look at the below picture]
3. Ask them to treat this piggy bank as an important asset and not like a toy – kids should be able to differentiate between a toy and a piggy bank.
4. Give them coins or notes of whatever denomination you have, frequently, and ask them to put it into their piggy bank
5. At the end of the month, open the piggy bank with the kids and count the money together
6. Count it out loud in order to emphasize the amount saved at the end of the month i.e. 1000 saved in a month
7. It will teach the kids that small amounts, if saved regularly, can turn into a sizeable corpus
8. While doing this you may face a practical problem – what to do with the coins?
9. Not to worry, we have a solution…!!
10. Count all the coins and dial up the nearest Kirana store to see if they need coin

iii. Trust me, they need it. They would be more than happy to trade coins for notes

1. I just did it today, traded INR 350 worth of coins into notes with the nearest Kirana store

Step 3: Train the Banking Transaction

1. Take kids to the nearest bank branch
2. Open a bank account in the kid’s name kid and link it to your main account
3. I have been taking my daughter to the bank branch from the time she was 2.5 years old
4. Trust me, they would love it
5. Ask your kid to handover the cash deposit form and the cash to the teller
6. The kid may cry for the first time that the teller has taken his/her money
7. My daughter was inconsolable for the first time when the teller took the money and handed over the slip to her.
8. Teach them how the banks function – where does the money go once you give it to the teller
9. Show them the entry of INR 1,000 deposited at the bank [on internet banking]
10. Take your kids along whenever you go to the ATM to withdraw money
11. Slowly and surely, they will understand the process.

Step 4: Invest/Consume

1. Start a SIP in a well-diversified equity mutual fund with INR 1,000
2. I have an INR 1,000/- SIP into “small cap mutual fund” for the past 17 months which is now equal to INR 25,252/- at a handsome CAGR of 77%
3. Returns are too high…isn’t it. I know times were such.
4. However, let’s not get married to this CAGR.
5. More important is the process and not the number.
6. At times, put more money into their piggy bank that they normally you do
7. Ask the kid to take out that money and buy ice creams/toys of their choice
8. They will learn that they can buy stuff off their savings
9. They will learn to stay within their means
10. Tell them that they can buy some stuff at the end of the month through their savings
11. Will teach them that elusive art of delayed gratification

Step 5: Repeat step 1 to 4 till the time they are 18.

1. The kid will probably understand that resources are not unlimited
2. You may end up inculcating a long-lasting habit of savings
3. The kid will understand living within their means
4. While kids learn some of these important lessons of their lives, the capital put aside in the MF grows to a sizeable corpus. Just to give some perspective.
5. INR 1,000/month will turn into 5 lacs while they step into their college [15 years @ 12%, assumed you start at the time the kid was 2 years and process continues till the time kid turns 17]
6. What wealthy life they can enjoy with this money. And the best part is that, if this is done year after year, they won’t splurge. Indulgence is not what they do.

Thus, the kids will understand the lifecycle of money and will become financially literate at a young age.