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The ideal time to teach your kids about money

Manvi Agarwal
·4-min read

Nobody wants to raise a child that feels entitled to everything around them. We all want our children to become responsible and careful spenders.

As parents, we often wonder - ''Will my child be smart about money?'', often forgetting that children only learn what they see and experience. Most of them get their money values from their parents. So, as a parent, it is our duty to instil these value systems in our children.

A common mistake parents make is waiting too long to give their kids money lessons. Even according to Warren Buffet, the No.1 mistakes parents make is - “Sometimes parents wait until their kids are in their teens before they start talking about managing money — when they could be starting when their kids are in preschool.”

Also read: Why is SIP a preferred way of mutual fund investments?

Introduce money lessons at an early age, preferably in preschool itself. Even at that age children are not only perceptive but also fast learners. A study suggests that children absorb the most from the ages of 2-6 years, making it a great time to teach them the value of money.

Ages 3- 6: Make learning fun

Kids are more visual at this age and respond well to fun activities. So the key here is to make learning fun.

It is a great age to introduce basic money concepts. Pull out the old piggy bank to introduce the concepts of savings and patience. Teach them how money and savings are all about achieving your financial goals, and how patience plays a large role.

Essential Lessons to introduce at this age:

  • Patience: Every time you are waiting in line for the slide or the swing, talk about the importance of waiting patiently.

  • Setting a goal: It could be something as little as buying a fancy toy or an outfit.

  • Saving for the goal patiently: Once they have understood these concepts, explain how you need to be patient to achieve your goal by saving small amounts of money.

Maintain two separate, preferably transparent piggy banks, so they can see how their money is growing over time. One for saving and the other for spending.

In the end, they must understand how crucial it is to wait and save for that one fancy toy they desire.

Also read: How much should you save in your 20s

Ages 7- 10: Teach them the true cost of choice

By this age, children understand the value of money. What it can buy, the value of coins and bills (rupee notes) etc. So, now is a good enough time to introduce the concept of choice.

Let them know that money can only buy a finite number of things. Once they have chosen a particular item, they cannot buy more.

Essential lessons to introduce at this age:

  • Concept of choice: include them in your smaller financial decisions like buying a particular generic brand over the other. Take them grocery shopping and have them choose between two of their favourite cereals.

  • Trade-offs: give them the option of forgoing something now and waiting for the bigger prize.

  • Charity: taking them to an old-age home and introduce the concept of charity by letting them help around.

In addition to this, continue to recall the previous concepts of patience and goal setting.

Ages 11- 14: How to utilise and grow your money

Introduce mathematic concepts like simple and compound interest and have them apply these concepts in daily life. Open a bank account in their name. Invest their savings, to depict how their money is growing.

Essential Lessons to introduce at this age:

  • Multiple uses of money: saving for emergencies, charity, long term goals (college education).

  • Investments: how to grow savings to achieve your financial goals. Set up three different piggy banks to depict the various uses of money (fancy toy, birthday party, charity). It is a great technique to demonstrate saving and investing for different financial goals.

  • Power of compounding: describe how money grows with time via a compound interest calculation.

By now, kids can understand mathematical concepts. Our job is to help them apply those concepts.

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Ages 14- 18: Introduce Budgeting

Lay the foundation of budgeting at this age. Discuss college.

Inculcating the habit of budgeting at an early age goes a long way. And what better than teaching them with the help of a live example. Start by sharing your household budget with them and then create a budget for their daily allowance.

They will be attending college soon. Teach them how to make the right decision, from a financial perspective as well. They must understand the kind of responsibility parents have to shoulder.

The idea is not to make them feel indebted to you, but to demonstrate how large expenses require planning.

“It’s never too early,” Buffett says. “Whether it’s teaching kids the value of a dollar, the difference between needs and wants or the value of saving — these are all concepts that kids encounter at a very early age, so it’s best to help them to understand it.”

We all want to give our children everything they want. Which not only means fulfilling their every want and desire but also equipping them with the right knowledge in every aspect of life.

Patience, delayed gratification and budgeting are the stepping stones to successful financial planning and to eventually leading a financially comfortable life. By introducing these concepts at the right age, we can shape them into responsible adults.

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