Teaching your kids about money
I tried to explain to my then 5 year old that we cannot buy her another toy because we didn’t have any more money. To emphasise my point I showed her my empty wallet. Her solution: But you have the ATM card, get money from the machine! Read on to know my attempts to teach my child about this very important aspect of life
At her age, my daughter Sona, assumed that the ATM is full of money that anyone with a card can take. I had to then try and explain the concept of salaries and fixed incomes to her. That set me thinking – I need to make her understand the importance of living within one’s means.
I also read that a Cambridge study found that kids form their money habits as early as 7 years of age! They observe you and internalise your money habits – are you giving in to impulse buying or do you sleep on a big ticket purchase? Do you use your credit card more often than your debit card? Are you advocating frugality and then splurging yourself? Are you giving in to tantrums and emotional blackmail? As an only child, and only grand-daughter in a family of boys, she was being indulged a lot, making lessons in money management a necessity. A difficult one!
The first thing I did to avoid tantrums in public spaces was to give her a fixed sum of money. A typical outing to a mall would start with her demanding that we go to her favourite toy store where she would want to buy everything. Next she would want to go to the arcade and play all the games. We generally disallowed her and this would lead to tantrums and as she grew, sulks. Since she was too young to be given pocket money, I started by giving her a fixed amount at the beginning of a shopping trip and telling her she could spend it anyway she wanted, but would not be given any more on that particular visit. I started with ₹ 100 and now that she is almost 9, at our last visit to a mall, I gave her ₹ 500.
I am happy to say, that once she realised that ₹100 can hardly get you anything, she consequently understood the concept of saving! She had her heart set on an archery set which cost about ₹ 1,800. So not only did she start saving for it, but also did some mental math and asked us to combine it with the money she gets from grandparents to reach her goal.
Lesson learnt: Living within one’s means, saving for big ticket items, consolidating income from different sources.
Summer vacations are a great time to get talking to kids about money. We did a lot of role-playing games during the holidays. As all kids, my daughter too loves collecting all the loose change in the house. We would use this in our games. We would set up different kinds of shops – a toy shop where we sold and bought her toys was a favourite, though at times it would end in tears as she would be upset at seeing her favourite stuffed toy being sold off! Sometimes I would be the shop-keeper, sometimes she would play that role.
Another favourite even now is running a beauty parlour. Apart from loose change, we also played by making our own currency notes. This prepared her to conduct transactions in real life. She is now able to cycle down to the end of our lane and buy some vegetables from the vendor there – there is no major traffic on the road and I can watch her all the way.
Lesson learnt: Concept of transactions, basic addition and subtraction, value of labour – doing something and getting paid for it.
Board games beat more than boredom
On a recent round of Monopoly where my mother, husband and nephew were also playing, we all learnt valuable money lessons. With my mom buying everything she stopped at, we learnt that though initially she ran out of money, in the long run, her investments made her the winner. My husband tried to play strategist and consolidated his property by buying all the utilities and came in second. I played a prudent game, hanging on to my money and ended up with an average kitty. My nephew tied with me with a lot of bad luck – he had to pay income tax several times and also got stuck in jail. And my daughter as banker kept score. I think she may be looking at banking as a career because she soon realised that the banker never loses! Board games can teach kids a lot about money habits in a fun way. There are several options to pick from.
Lesson learnt: Investing, consolidating, profit and loss, taxes, utility bills, the role of unforeseen factors like bad luck, illness, taxes affecting your income.
It is never too early to get your kids to understand the necessity of planning. Get them involved in planning the money aspect of a trip. When a friend and her family recently went on a trip to Russia, they sat together and budgeted their activities. They knew how much they had to spend for all activities. They researched the things they could do and each family member was allowed to pick one from their list of must-dos. So no one cribbed when mom wanted to visit the churches or when the boys wanted to go to the Kremlin.
Involve the kids in the monthly budgeting as well. This will give them an idea that the money is not limitless and that there are so many unseen expenses like water and electricity bills, school and bus charges, unforeseen expenses like doctor visits. Let them appreciate that meals at restaurants are a treat and that ordering in may be convenient but comes with a bigger price tag than a home-cooked meal.
Lesson learnt: Planning, prioritising, being mindful of the needs of every family member, appreciating the luxuries, awareness of cost of living.