How do I financially educate my child?

We teach our children the importance of having good manners, eating well and studying hard. Yet, somehow, we do not lay equal emphasis on financial matters. Why not? After all, children will not remain young forever. They will grow up, explore the world, chase successful careers, get married, raise a family and more. A basic knowledge of financial matters and an understanding of how to manage their money will stand them in good stead in their later years.

Parents today must realise the necessity of teaching their children about the value of money. Faced with children's constant demands, parents frequently turn to that old adage, “Money does not grow on trees”. Instead of reeling off ancient proverbs, explain to your children why you cannot satisfy their every demand for extra cash and goodies.

Catch them young

It is never too early to educate your children about money matters. Start on those early trips to the toy store, while they are still learning to add and subtract. Tell your child that you have a toy budget, so he/she can have one, two or even five toys, provided it does not overshoot that budget.

You could take your children grocery shopping. As you choose one product over another, explain the financial implications of your choice. Talk about quality, quantity and discounts, so that your kid learns to spot a bargain when he/she sees one.

Whatever you do, do not spoil them rotten. Giving your children whatever they want, whenever they want is poor parenting. It could leave your child unprepared for financial challenges in the future.

Explain the value of money

It all begins with the allowance. Give your child a certain amount each week and no more. Be firm about this. You could also follow the three 'S' principle of saving, spending and sharing. In the early years of allowance, give your child three separate portions of money to save, spend and share or donate to a good cause. This will inculcate financial discipline and generosity in your child.

As he/she grows up, give the proportionate allowance money once in two weeks or once a month. This will help your son or daughter to budget their finances accordingly and make the money last longer. This will prove helpful once your children start drawing a monthly income.

If they need extra money, let them earn it by helping around the house. Once they are old enough, encourage your kids to get part-time jobs. Nevertheless, ensure that the job does not eat into their study time.

Teach by example

Remember, children learn from what they see. So work hard at being a good example when it comes to financial matters. Live by what you preach. While the occasional splurge is allowed, frequent shopping spree could send the wrong message. Staggering credit card bills are obviously a no-no. You could even give your child a debit card attached to his/her savings account, so that he/she realises that money does not just come out of the ATM machine limitlessly.

Invest in fixed deposits and mutual funds with your child. Explain to them why you need to insure the car, the home and the family's health. They may not understand it all at once, but the early exposure will help them grow into financially savvy adults.

Article contributed by MyInsuranceClub.

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