As a parent, you want to shield your child from any difficulty and plan for a rainy day. Along with your responsibility, educating your child about basic money matters can help them a lot.
In fact, teaching your kid the basics of finance is the best thing you can do for their future. Introduce them to the power of compounding. Encourage them to start saving early in life, as it gives more time for the money to grow.
Here are a few other S.M.A.R.T. things to share:
Start early and ensure that your child does not fall into the traps of the financial world and is confident about their finances and learns the importance of saving.
Introduce your child to the basics of money. Talk to them about why money is important and how one needs to be judicious with its usage. Help them identify the cost of various objects around them and understand how money helps buy goods and services.
Based on your child’s age and current knowledge, start by explaining the value of money, effects of inflation, what is plastic money, why savings are important, how to invest and grow your money, why should one have insurance, demand supply cycles, etc. Contrary to popular perception, these aspects are pretty simple to understand and can be made interesting too.
Even as adults, a lot of us are not organized about our finances. Tracking your income and expenses is the first step towards sound financial planning. Inculcate a weekly routine where your child notes down his/her spending. Alternatively, if your child is older, make him/her in-charge of a certain aspect of household finance, like utility or grocery expenses.
None of us is immune to advertising. Formulate simple rules and let your kids know that they cannot have everything they see. As they grow older, discuss how marketing and advertising can impact our lives. Teach them to differentiate between needs and wants.
‘Money saved is money earned’ – this simple phrase encompasses the true wealth of savings. Imbibe a habit of saving from early on in life. Teach them the 50-30-20 budgeting thumb rule, which states that 50% of one’s income should be is attributed towards necessities, 30% should be saved for long-term goals, and only the remaining 20% should be spent for lifestyle needs like eating out, leisure, etc. Just like learning to ride a bicycle, ‘saving’ it will automatically become an eternal part of your children’s personality.
While you imbibe the ‘savings habit’, do not shy your kids away reaping the benefits of these savings and investments. Encourage them to set goals and invest accordingly. Once they achieve a milestone, let them use the money to fulfil their aspirations. It could be buying the latest gaming console, a smart phone or even a foreign vacation!
Introduce your child to the concept of taxes and how it helps build the nation. However, also highlight the ways and means to save taxes. With proper investments and savings instruments, they can leverage multiple tax deductions that can make a difference in the long run. Share details about your life insurance policies and health insurance policies and how it helps you save thousands of rupees in taxes.
It is never too early to teach your children how money is earned. Make them understand the value of honesty and hard work. You’ve won half the battle when they realise that to buy something, you have to earn it.