Parents, Teach Your Children These 12 Essential Money Lessons!
Children’s Day – November 14
Srinivasan S,
Personal Finance Professional,
Ducatz Finserv Ph: 995 260 4444,
ARN: 64151
True wealth is not just about earning money; it is about knowing how to manage the money you earn!
Arun, the son of Ravi, who lives in Coimbatore, completed his college education and joined a reputed company. He earned a monthly salary of ₹75,000. Ravi and his wife were proud of their son's earnings. However, a few years later, the situation changed. Despite earning a handsome salary, Arun had no savings. Instead, he had accumulated debt of ₹5 lakh through credit card usage, personal loans and unnecessary purchases.
When Ravi questioned his son about his financial situation, Arun replied, "I know how to earn money, Dad, but nobody taught me how to spend it wisely or how to save it."
Arun's problem is not unique. Today, many young people receive a good education, secure well-paying jobs and earn substantial salaries, yet struggle to manage their finances. One of the reasons is that while they learn several academic subjects at school and college, they often miss out on an essential life skill – financial management.
Therefore, parents must guide their children from an early age to understand the value of money, the importance of saving and the power of investing. Here are 12 important money lessons every child should learn.
1. Teach Them the Value of Money!
Avoid buying everything children ask for immediately. Help them understand that every purchase requires money and that someone has to work hard to earn it. Explain, in an age-appropriate manner, how the money earned by parents is used to meet various family expenses.
2. Teach Them How to Manage Pocket Money!
Give children a fixed amount of pocket money every week or month. For example, you can give them ₹100 a week and observe how they spend it. Teach them not to spend the entire amount in one day but to plan their spending based on their needs. If they run out of money, instead of immediately giving them more, explain how they can manage it better next time.
3. Develop the Habit of Saving!
Give children three separate piggy banks. One can be used for spending, another for saving and the third for helping others. Encourage them to save at least 20% of the money they receive. Help them understand that even small amounts can grow into a substantial sum when saved regularly.
4. Explain the Difference Between Wants and Needs!
A bicycle may be necessary for going to school. However, wanting a more expensive bicycle than the one owned by a friend is a desire. Children must understand the difference between these two. Encourage them to think before making a purchase and ask themselves whether it is a genuine need or merely a temporary desire.
5. Teach Them to Delay Instant Gratification!
Instead of immediately buying everything children want, encourage them to save towards their purchases. For example, if a child wants a toy worth ₹2,000, ask them to save a fixed amount every week until they reach the target. This develops patience and planning skills. Such habits can also help them avoid unnecessary borrowing when they grow up.
6. Help Them Understand the Relationship Between Work and Income!
Children should understand that money is earned through work and effort. Give them age-appropriate responsibilities, such as organising household items or watering plants. Sharing family responsibilities should be a natural habit. You can also offer small rewards for additional efforts. This helps them understand the relationship between work and earning.
7. Teach Them to Set Financial Goals!
Encourage children to choose small financial goals, such as buying a new bicycle, purchasing books or saving for higher education. Ask them to calculate how much money they need, how much they should save every month and how long it will take to achieve their goals.
This will lay the foundation for planning bigger financial goals in the future, such as buying a house, funding children's education and building a retirement corpus.
8. Explain Interest and the Power of Compounding!
Teach children the basics of interest through simple examples. Explain that if they save ₹100 at an annual interest rate of 10%, they will have ₹110 at the end of one year. If interest is earned on ₹110 in the following year, their money will grow further. This is the basic principle of compound interest.
Help them understand how even small savings can grow over a longer period through the power of compounding.
9. Make Them Cautious About Loans, Advertisements and Discounts!
Explain that borrowing money means spending a portion of future income today. Children should understand that if credit card bills are not repaid on time, interest and additional charges can accumulate.
Similarly, buying unnecessary products just because they are available at a discount is not saving money; it is unnecessary spending. Encourage them to compare prices before making purchases and to avoid being influenced by advertisements.
10. Introduce Them to Bank Accounts and Digital Payments!
As children grow older, introduce them to basic banking concepts such as savings accounts, depositing money and withdrawing money. Explain the benefits of saving money in banks and the various services banks provide. Under parental supervision and according to their age, children can be taught how to use a bank account.
In particular, emphasise the importance of safety while making online transactions. Teach them never to share their bank account details, passwords or OTPs with anyone. They should also avoid clicking on unknown links or responding to suspicious messages.
11. Introduce Them to the Basics of Investing!
Children should understand the difference between saving and investing. Explain that saving means keeping money aside safely, while investing means allocating money through suitable avenues with the objective of growing wealth over time.
Introduce them to different investment options such as bank deposits, gold, the stock market and mutual funds through simple, age-appropriate examples. Explain that every investment carries some degree of risk along with the potential for returns. They should understand an investment before putting money into it.
Most importantly, teach them the importance of time in long-term investing and the power of compounding in wealth creation.
12. Parents Must Lead by Example!
Children observe what their parents do more closely than what they say. Therefore, parents must first practise good financial habits themselves by controlling expenses, saving a portion of their income and investing towards future goals.
Involve children when preparing the family's monthly budget. This will give them an opportunity to understand how household finances are planned and managed in real life.
12 Money Lessons Every Child Should Learn – At a Glance!
|
Money Lesson |
Financial Habit to Develop |
|
Value of Money |
Respecting hard work and income |
|
Pocket Money |
Spending with a plan |
|
Saving |
Setting aside a portion of money |
|
Wants and Needs |
Avoiding unnecessary expenses |
|
Patience |
Avoiding impulsive purchases |
|
Work and Income |
Understanding how money is earned |
|
Financial Goals |
Planning and working towards targets |
|
Interest |
Understanding how money grows |
|
Credit Awareness |
Managing debt responsibly |
|
Banking |
Making safe financial transactions |
|
Investing |
Building long-term wealth |
|
Parental Example |
Following good financial habits |
Don't Just Raise Wealthy Children... Raise Children Who Know How to Manage Money!
A parent's responsibility does not end with providing children with expensive education, assets and money. It is equally important to give them the knowledge and skills to use these resources wisely.
Not everyone who earns a high income becomes wealthy. People who save a portion of their earnings, spend according to their needs and invest towards long-term goals are the ones who build lasting wealth.
Therefore, rather than focusing only on how much money we leave behind for our children, we should focus on passing on the knowledge of how to earn, save and grow money. That is one of the greatest gifts responsible parents can give their children.
This Children's Day, let us give our children not just money as a gift, but also the knowledge to manage it wisely. When good financial habits are planted in childhood, they can grow into trees of wealth throughout their lives!
For More details and Investing
Srinivasan S.,
Personal Finance Professional,
Ducatz Finserv
Ducatz FinServ operates in Chennai and Tiruppur and is founded by Srinivasan Subramanian, who serves as its Chief Personal Finance Consultant. He has over 13 years of expertise in personal financial management. He specializes in personal finance, comprehensive financial planning, insurance planning, budgeting, investment advisory, and wealth management.
Currently, he provides financial guidance and support to more than 250 families, helping them improve their financial stability and growth. Beyond individual client services, he is deeply committed to promoting financial awareness within the community. He also conducts financial literacy certification programs and training sessions for college students through institutions and independent classes, empowering young individuals with knowledge about financial discipline and money management.
Read articles written by Mr. Srinivasan S. in Nanayam Vikatan, a leading personal financial management magazine. https://bit.ly/4r0Mlbp
To learn more about Savings... Investment... Goal! (சேà®®ிப்பு... à®®ுதலீடு... இலக்கு!) the book written by Srinivasan Subramanian and published by Vikatan Publications. Read the Book Review
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