It's the time of new beginnings and new resolutions. So, how about starting off the New Year with conversations that can make a difference to your child's life in the long run? I am going to outline three conversations that you must have with your kids so that they understand the importance of good money habits early on in their lives.
1. Understanding money
The younger a child is, the bigger their demands. What they lack is a basic understanding of money and which is precisely what they need to learn. No, we don't want them to become too concerned about money either but some hands-on experiential learning would help a great deal.
Allow your child to pay at the toy store or grocery, so that they can see the physical transaction take place.
For starters, you can allow your child to pay at the toy store or grocery, so that they can see the physical transaction take place, thereby helping them learn the value of a certain amount and what you got them for that amount. I feel that it is essential that they learn, all money spent is money earned in exchange for work and therefore needs to be spent a little more carefully.
2. Managing money 101
Once your child understands the basics of bartering and what a certain amount of money can buy them, you can take the conversation a notch higher. Most teenagers are driven by peer pressure and come to parents with demands that are not based on what they are doing, but rather what their friends are doing. I think the best way to tackle this is by making them realise the difference between wants and needs, and this would be highly effective at this stage. As a parent, I wouldn't want to turn my child down with a straight "no", but give them the explanation behind my refusal.
Moreover, many parents are from the school of thought that they should give their child what they didn't get when they were younger. This may, however, not be the right approach if it is not well-balanced with an understanding of money. In my conflict of being a parent vs. a friend, I find it essential that we strike the right balance. We could work towards an understanding where we make sure what the child asks for is relevant at their age or if they can make better use of it when they are a little older. We can also ask them to set a certain goal or target (financial or non-financial) to accomplish in order to help them understand how to achieve something by working towards it.
3. Smart money management
As your child understands money better, the next step is to learn about the management of finances. To learn how to better manage their money as young adults, to master the art of budgeting and how to spend within a certain limit. Investments and credit should also become a part of their vocabulary. It's no longer only about how much they save and spend, but also about building their own financially independent future.
Decisions made without the backing of sound financial knowledge can potentially affect the success of a child's future.
I am aware that the topic of money is not a part of most school or college curricula and hence it is difficult for our children to identify what is the next step for them. For teens especially, I wouldn't want them to step into college and not know what goes where in managing their finances! Planning at the start of the month and budgeting funds according to requirements is just one step in this direction -- but what about paying back on time, the dynamics of credit etc? Or do they know the role of credit institutions and how it could impact their ability in future to get a loan? Decisions made without the backing of sound financial knowledge can potentially affect the success of a child's future. Hence, it is essential that your child is actively involved in a process of comprehensive money management, be it spending and saving or managing and investing.
The over-concerned species that we parents are, let's make this New Year the perfect time to ensure that we bestow our children with knowledge they can bank on.
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