How to educate your children on money matters with these basic lessons

In this article, we look at some of the great finance lessons that can help your children become financially fit, especially if they start learning about personal finance early in their lives.

Explain the basics of saving

It is quite natural for money to burn a hole in the pockets of young children as they often want to spend the free money they receive for birthdays and holidays. However, as a parent, it is crucial to help them understand the many wonderful benefits of delayed gratification. If your kids have a special request, you can take this opportunity to talk to them about saving money for major purchases.

Experts say young children need to learn to stop spending their pocket money on smaller and more immediate pleasures and save for the future to make bigger and better purchases. They can sometimes ask to share the cost with you or to pay the full cost themselves.

Find out about smart spend

One of the most important pillars of financial understanding is the distinction between wants and needs. Sanjiv Bajaj, Jt. Chairman and MD, Bajaj Capital Ltd said: “Your child needs to understand what to have and what is necessary at any given time. It can certainly be observed that small children often do not understand difficult topics, simply because of a lack of knowledge. It is entirely up to parents how to refine their children’s understanding of what constitutes a need. You can start with a simple but effective example that we first spend on basic necessities like food, clothing, shelter and medicine. Meanwhile, desires like vacations, toys, and entertainment are secondary and must be bought only after basic needs have been met.”

Build credit knowledge

Credit is the only technical aspect children need to learn to become financially literate and understand how money works. Credit is a person’s permanent record for life. Most children don’t necessarily know that credit means borrowing from others, which has a cost. As a parent, you need to teach them, when necessary, the importance of having credit in life. They need to learn that loans are an important and valuable tool that they can also use to keep track of monthly expenses.

However, teaching young children about credit can be daunting. All your kids need to learn is how to best use credit to their advantage.

Understand how time helps money grow

As you teach your children various financial lessons, it is equally important to teach them that money has a time value. Bajaj said, “You need to introduce your growing children to some complex financial concepts like compound interest and how money invested in specialized financial products over a long period of time has the potential to grow significantly.”

He added: “It was much easier to get them these terms when savings accounts brought higher interest rates, but times have changed. With interest rates falling drastically, you need to teach your kids to invest money in meaningful sources so that it grows over time. Most importantly, your kids need to know that investing money comes with risks and losses when the market goes down, and they need to learn how to deal with such situations.”

First article