Money Management: Make your kids financially smart

As parents, we do everything that we can to set our children on the path to professional success. We identify hobby classes, tutorials, sports coaching and leave nothing to chance. For the most part however, we forget to inculcate some key life skills in our children – the foremost amongst them being money management.


Holidays are a great time to give your children exposure to money matters because the absence of school work and a relaxed atmosphere make children more receptive to new things. So let us look at how we can go about inculcating financial wisdom in our children and develop money management skills.

1. Talk about money

As parents we often underestimate our children’s ability to process and digest information given the number of times we find ourselves yelling, “Do this” or “Don’t Do This”. Children, however are smarter than we give them credit for and they understand a lot more than we believe.

Begin by asking them simple questions like, “What are the things that you use in your daily life?”, “What are the things that you like to do?”.  With their answers, build on the fact that one needs money to pay for them and then ask them, “Where do you think that money comes from?”. The answer in most cases will be, “The ATM”!

2. Explain how money is earned

Since children learn best by observation, many of the children especially those in the 7-10 year bracket live with the impression that when one needs money, one goes to the ATM.  It is not really necessary to get into the exact details of your salary or income – most kids won’t be interested. Focus on the concepts of earning, spending and saving.

While it is a great idea, if you are not self-employed, it is not always possible to take your child to your workplace to see how you work and earn your living.  The next best thing is to take your children to the market. Go to your preferred vegetable vendor and demonstrate how you pay for the vegetable that you buy and explain the mechanisms behind it, support it with videos and tutorials which are widely available on the net.

3. Involve them in household errands

 Have children who are slightly older to run errands – such as buying milk, vegetables and groceries and allow them to handle small amounts of money and account for them.  Give them a fixed sum and then have them provide a break-up of their expenditure and also the change being returned is a great way of not only brushing up mental maths skills but also inculcating the sense of responsibility when it comes to money management.

Children can also be involved in the maintaining the day to day accounts of the household expenditure.

One family, for example, has entrusted this task to their nine-year-old daughter.  At the end of each day, all the family members report their expenditure to her and she records it on the computer. At the end of each week, she provides a report to her parents. Her mother has been helping her in categorising the various heads of expenditure to gain an understanding of how the household expenditure takes place. This example can be replicated as a summer project.

4. Give them exposure to the banking system

Most children in urban households have a bank account but they have no clue about it because it is mostly managed by their parents. Taking your child through the process of opening a bank account, right from the scratch, will create a sense of empowerment and responsibility in the child. Encourage your child to deposit the monetary gifts that they receive and help them in making a few withdrawals now and then to help them gain experience with the banking system.

5. Encourage them to earn their pocket money

Children do not have to venture out of the house to learn that earning money involves effort. It can be done at home as well.  While one should avoid monetising activities which is compulsory for them for example, the completion of holiday homework, participating in sports and working on hobbies. They can perform different tasks around the house during the vacations for example, cleaning the kitchen shelves, tidying up the cupboards and almirahs for which you pay them an agreed amount or even turn mini-entrepreneurs by making juices, cookies and cakes and selling them to willing friends and relatives .

Children above the age of ten can even be encouraged to give short tuitions to younger children under your supervision. Children who are musically inclined can host concerts. Encourage and support your children to come up with creative ways to earn during their vacations but do not get carried away and make things easy for them, let them struggle, fail and learn about the challenges involved in the process of earning an income. It is only then they will appreciate the value of money.

6. Help them learn how to save

When your child expends effort in earning money, he/she will have a natural instinct to save it. As a parent you can help your child by depositing a part of his/her money into his/her bank account. The remaining part, you can save in a piggy bank.

Piggy-banks (even those which do no resemble a pig!) are a great way of helping children learn about savings by visualizing the saving process. Children actually see their money increase as they keep adding to the piggy bank.

Children can be encouraged to think of a specific thing like a dress or a toy or a book which they may want to buy and then they can be guided to save towards this. Praise the child when they are successful with their savings, giving them positive reinforcement in this direction.

Many parents baulk at the idea of discussing financial matters with their children fearing that they will misguide their children or reveal themselves to be inadequate.  Remember children learn a lot by observing you , so if you demonstrate an honest and responsible attitude towards money; live within your means; spend carefully and save ,your children will learn the same from you. Of course, little projects during the vacation as we have shared  above will help you along in developing money management skills in them.

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