How to teach “money” to kids

Last week, I visited Mr. Ravi Krishnan at his home after a hiatus of 3 years. I found him struggling to teach his kids the value of money on a Sunday morning. In fact, most kids aren't being taught money basics in the school. In a nuclear family, it is a daunting task to educate kids about money. In the olden days, the grandfather or grandmother inculcated these skills in the children at a tender age.

American businessman and author David Ramsey once quipped, “You must gain control over your money or the lack of it will forever control you.”

Interestingly, lottery winners have filed bankruptcy after just three to five years of winning it. Studies have shown that winning the lottery does not necessarily make anyone happier or healthier. 

This emphasizes the importance of training our kids about money skills.

We have compiled certain basic guidelines to help the parents of the post-millennial kids about the money lessons: 

Say no to piggy banks, use clear jars! 

One reason is that piggy banks are not transparent to make your kid watch the money growing day by day. With piggy banks, they tend to break it soon to spend the money as they won’t know how much they have saved. Jars, on the other hand, are pretty clear to see the money growing. 

Not just one, but three jars to categorize their allowances into expense, charity, and saving. Let them keep track of their jars in a notebook to write how much they have inserted in each jar. Ask them to make a budget and help them monitor their cash flow. For the expense jar, ask them to make a wish list of items they would love to have. This will make the whole process goal-oriented. The kids might tell themselves: I’m saving for my watch. And the next time they think about the watch, they will work productively. Thus, growing into better adults. 

Cultivate the right hobbies

One of the best hobbies to introduce to your child is coin collection. When they touch and feel the coins, they understand and are able to differentiate each coin. The kids also get to know the intricacies of each coin. This hobby can also teach them the eighth wonder of the world - the compound interest. Albert Einstein famously stated: “Compound interest is the eighth wonder of the world. He who understands it earns it. He who doesn’t pays for it.” Compounding interest affects everyone the same because it depends on time.

Have Fun grocery shopping!

Give the money allocated for the grocery to your kids along with the grocery list and estimated price. Tell your child that if they find any sale or offer on certain things, they can keep the money they saved or buy something for themselves with it. This will make them look for ways to reduce the costs of every product. Even if they don’t reduce any cost, it will be a lesson and they will probably be more aware next time. 

Talk about money in front of them

When you don’t talk about money to your spouse or family members in front of your kids, they automatically regard it as something ‘taboo’. Be transparent when you converse about money. Let them know how much you earn, save and spend. Let them witness how you and your spouse compromise on an expense such as a new electronic or a new furniture. 

At the same time, make sure you don’t show them how money makes your loving relationship bitter as they will eventually think money creates problems. It’s your weakness and the next time you get frustrated in front of your kids, you will tell yourself to be calm. This will also make you a better person while teaching your kid indirectly. 

Show, Don’t Tell!

Kids aren’t mature enough to listen to you preaching about the importance of saving money. Instead, show them how you do it. Take them to the bank with you, not to make them sit in the corner with a toy but to look around and be curious enough to ask you. 

Explain them that the bank is where you keep your money safely and not where you get money for free whenever you want. Show them how you deposit your cash, so they’ll know. Now that everything is electronic, you have to explain them accordingly with your online transactions. Whenever you need to count money physically entrust the job to your child. This will make them understand the denomination, size and all the other aspects of money. Kids also enjoy when you involve them in some activity, especially money related activities and games.

Pay them for the right things. 

Parents often get this wrong as they pay their kids for tiny chores like bringing dishes to the table. Pay them for the hard work they do out of sheer interest. If they decide to wash the car or clean the floor after a party, give them special treats. Ask them if they want it as money or as an ice-cream. Your child will mostly ask for money instead of the material once they get the hang of how money works. It makes them aware that money is not just given by parents but has to be earned. 

Let them buy that toy with their allowance

We’ve all had this common scenario when we are out with the family to the mall and your kids’ eyes widen at some interesting new toy. They turn to you with a puppy face and tell you how badly they want it and start making you feel pitiful for them. During such scenarios, ask them to buy it with their own money from the piggy bank the next day. As the day passes and they have a look at their hard-earned piggy bank, they will lose the interest to buy the toy. 

When they are asked to buy their toys and ‘wants’ with their saved pocket money, they will buy cheaper ones as they know how hard it is to spend when they hand the physical cash to the cashier at the counter. 

Teach them to give when they get 

“Charity is the root of all good works.” Inculcate the act of giving and the happiness that is attained from the charity. This way you will make them financially strong and a better human. Whenever they have enough, ask them to give a short percentage of it to the poor and needy. It doesn’t matter how much they give but the mere act of giving. This will make them spend their money carefully next time, as they will know how some people need money worse than them. 

Financial knowledge is crucial in today’s world and schools don’t impart the essential financial skills despite the decade-long education. As parents, it’s your sole duty to educate your children about the importance of money and its role in day-to-day life.