“Academic qualifications are important and so is financial education. They’re both important and schools are forgetting one of them.”
As parents, we place education as the topmost goal for our children and family. But is education only about degrees and getting a job?
Education also means developing and honing life skills required to not just survive but thrive in the big wide world. Traditional education will take you kid so far, But true freedom is achieved by financial education.
Understanding money is one of the most basic and necessary skills that is not taught in school. Why is it important and how can we inculcate good money habits in children? Let’s see how:
Understanding the value of money
As parents, first and foremost we must help our children understand why money is important.
Money ensures a comfortable life, access to good food, education, healthcare, basic needs, and entertainment.
All are possible when we have enough money and sustainable income. Money empowers us to help others.
Yes, money is not an end goal but making money while pursuing what we love is the path to peace and happiness.
As Warren Buffet famously said, “Money is not everything. Make sure you earn a lot before speaking such nonsense.” Well, we agree.
The virtue of saving
Saving and frugality are the age-old values Indians live by.
In the famous book, ‘Richest man in Babylon’, the author advises that one must distinguish between necessary expense and desire.
Otherwise, the expenses will expand to eat away the entire income. Yes, it is important to discern between needs, desires, and unnecessary expenses.
With the noise all around us about aspirational lifestyles, gadgets, and luxuries, it is easy to get into a paycheck-to-paycheck way of life.
One needs to have clear financial goals and keep aside money for investing in a disciplined way.
The magic of compounding
The magic of compounding is something children need to witness themselves.
Open a bank account and set up a simple SIP for children to see how even small amounts invested in good investments compound over a period of time to return a sizable corpus.
Money is an asset that can earn more money for us is a concept we must discuss and demonstrate.
Managing one’s expenses can be taught by simply handing over a fixed sum to the child and asking him/her to manage monthly grocery or eating-out expenses of the house within the budget.
Spending wisely and within the budget will help the child learn about making informed choices.
Buy now, think later is a dangerous philosophy social media spawns. Saving what you have for a future goal by delaying instant gratification is a skill useful in all aspects of life, not just finances.
Encourage your child to save the pocket money or monetary gifts from family members in a piggy bank. By doing this, children learn to have a feeling of control as well as save for later consumption.
The opposite of compounding is paying interest on borrowed money. Unless the payoff and purpose is clear, taking loans and paying interest is avoidable.
Youngsters often make financial mistakes like running credit card debt, taking loans for flashy personal items and find themselves paying high-cost loans instead of investing the money.
We must explain the concept of debt and borrowing to our children early on.
While it may sound a bit too much to explain about balance sheets or business models to a child, it is not.
In simple terms, we can explain how a business works, where they get money from for their day-to-day business and growth and how we can be part of a good business by simply investing in its equity.
It is that simple. From laptops to toys to clothes, food and cars every single product is produced by a well run business.
Investing in sound businesses through stock markets is an art and science we can introduce our young ones to.
Previous generations never thought twice before saying no to children for any demands. Today, we equate stuff and objects to love and as a result children barely hear a ‘No.’
As parents we must learn to say no more often and not just for more screen time or stuff.
Life doesn’t roll out a red carpet as children step out of the comforts of home. Resilience, grit and ability to face failures and hardships maketh a strong human capable of facing life’s blows.
Good money skills certainly help in tough times.
Happy Children’s Day!