Did you know that less than one-third of the Indian population and less than one-fifth of are the country’s students financially literate? Yes, the number is quite alarming, considering the significance of financial literacy for the country’s development.
However, now is the time to take up the responsibility and act on it. Financial education is of utmost importance to everybody, irrespective of age. So, it is essential to update your skills around finance and also spread the knowledge to others around you, including young children.
Today’s blog revolves particularly around financial literacy for kids. So, let’s go through some easy ways of teaching money skills to children.
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Importance of financial literacy in childhood
Poverty is one of the significant blockers for an economy to grow and develop. Poor understanding of finance is the root cause of such poverty. Hence, it is of immense importance for everybody, irrespective of their age, to develop financial knowledge.
Acquiring financial education early on helps develop the practice of saving and investing from childhood. It helps them attain financial objectives faster. Besides, financially literate youth contribute meaningfully towards the growth of the economy.
Tips to teach practical money skills to kids
Parents have an influential role in the lives of their children. Kids are seen imitating the habits of their parents while young, which they gradually take over as they grow. Hence, parents teaching money lessons to kids are vital. Here are some simple parenting tips for financial education.
Explain the basic economic concepts.
Simple concepts of needs and wants considerably impact how kids understand money. Parents can look for creative ways to explain the differences between needs and wants. Knowing the difference between the two helps kids prioritise their expenses as they grow.
Expose them to the uncertainties of the job market.
The job market is ever-fluctuating and is impacted by various economic events. Uncover the harsh realities of recession, layoffs, etc., so your kids are well-prepared for what to expect in the future. It also develops entrepreneurial skills in them as they realise the importance of having passive income streams.
Discuss your loans.
Parents usually keep their difficulties away from their children. While the intention behind it is to keep the kids happy, it creates an incorrect perception of life in their minds.
Discussing loan commitments with kids gives them the knowledge of different ways to gather funds during times of need. They also understand well in advance the complexities involved in debt. This facilitates making rational decisions rather than hasty ones.
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Teach them how to spend, save and invest.
Teaching children about savings and investment can take them a long way in their financial journey. A simple way to do it is by empowering children with budgeting tips.
Another interesting idea to develop this habit is to reward your children with pocket money. Give them tasks and reward them with money, once they achieve the target. Teach them the different ways to utilise their money. 50:30:20 is a simple thumb rule for beginners that suggests spending 50%, saving 30% and investing 20%. The proportion can be altered to suit individual requirements.
Create bank and demat accounts.
Look for options to create bank and demat accounts for minors. Involve your kids while you create these accounts and transact using them. Explain how banks work in taking deposits and giving loans.
Creating a minor demat account and gifting shares to your kids on their birthdays is an intelligent way of exposing them to stock markets early in their lives. They will already have lucrative investments by the time they turn 18, provided the stocks perform well.
Involve them in managing finances at home.
Most individuals do not have the experience of running a household until they start living independently or start a family. The lack of experience can push them to make wrong financial choices as adults, affecting the entire family. Hence, managing a house is an essential skill for every individual.
Talk to them about financial scams.
Educating kids about financial scams helps them differentiate between right and wrong practices. It also gives them the knowledge to highlight mishappenings and take necessary actions. Explaining financial scams in a language they understand helps build their healthy morals and protects them from getting trapped.
Explain how money is a means and not an end.
While financial education is essential, understanding the position of money is critical, too. Considering money as the end goal in life creates greed and pushes people to find fraudulent ways of earning it. Hence, teaching your children about how money is the means to live a peaceful life and not the end goal is paramount.
Look for schools with financial education in their curriculum.
Though Indian schools do not have financial education as part of their regular syllabus, multiple schools conduct workshops and financial education activities for children. Enrolling kids into such schools helps them attain knowledge from experts in the field.
Practise what you preach.
Despite teaching various skills, if parents fail to follow these practices themselves, it becomes difficult for kids to inculcate them. Children learn the most by imitating the habits of their elders. Hence, handling kids and money management with sensitivity and intelligence is the right approach.
Also read: Creating and sticking to a budget
Financial literacy is increasingly important today, with changing economies. Knowing how to manage your money can help you navigate through uncertainties with ease. Developing this skill early in life helps individuals be well-prepared for unforeseen events in the future. Hence, teaching children money skills is an important duty of parents as well as educational institutions.