NEW DELHI: Parents must understand that finance is undoubtedly one of the most important conversations they should have with their growing children. Early lessons on money and finance can help them avoid issues in the later stages of their lives. Since it is not always possible for schools and colleges to offer courses on personal finance, parents should take the responsibility of educating children on matters related to money.
In this excerpt, we look at some key financial lessons that can help your kids become financially fit, especially if they start learning about personal finance early in their lives.
Explain the basic principles of savings
It is quite natural for money to burn a hole in the pockets of young children as they often want to spend the money on gifts they get for birthdays and holidays. However, as a parent, it is important to explain to them the many wondrous benefits of delayed gratification. Since your kids want something special, you can use that opportunity to talk to them about financial savings for a more important purchase.
Experts say young children should learn to stop spending their allowance on small and immediate pleasures and save up to make bigger and better purchases for the future. They may sometimes be required to share the expenses with you or cover the entire cost themselves.
Educate about spending smartly
One of the key pillars of financial understanding is to distinguish between wants and needs. Sanjeev Bajaj, J.T. The Chairman and Managing Director, Bajaj Capital Ltd. said, “Your child must understand what is good and what is required at a given point in time. It is quite seen that young children often fail to grasp sophisticated subjects, The only reason for this is the lack of necessary knowledge. It is entirely up to the parents how they refine their children’s understanding of what is required. You can start by citing an elementary but effective example That we spend first on basic necessities like food, clothing, shelter and medicine. Meanwhile, necessities like holidays, toys and entertainment are secondary and should be bought only after the basic needs are met.”
build credit knowledge
Credit is the only technical aspect that children need to become financially literate and understand how money works. Credit is a permanent transcript of a person for life. Most children do not know that credit means borrowing from others, which comes at a cost. As a parent, if necessary, you should teach them the importance of having credit in life. They should learn that credit is an important and valuable tool that they can also use to keep track of monthly spending.
However, teaching young children about credit can be difficult. All your children need to learn is how to best use credit to their advantage.
Understand how time helps make money
While teaching your children various financial lessons, it is equally important to make them understand that money has a time value. “You should introduce your growing children to some complex financial terms like compound interest and let them know that money invested in dedicated financial products has the potential to grow significantly over a long period of time,” Bajaj said.
He further added, “When savings accounts earned higher interest rates, it was very easy to introduce these terms to them, but times have changed. With interest rates falling drastically, you need to encourage your kids to invest money in meaningful sources. Doing needs to be taught so that it grows over time. The most important thing is that your kids should know that investing money in down market conditions comes with its share of risks and pitfalls, and they should be able to deal with such situations. should learn.”
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