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Financial prudence is a critical life skill to be had by every individual. Many of the habits that form our character are influenced by our upbringing. An individual's approach to financial matters depends much on what he's learned from the way things were done at his home. Financial education is as important as learning language, math, science and history but unfortunately the education system in India is yet to incorporate financial education in curriculums. Financial literacy will help children gain understanding and awareness of money and will empower them to make good financial decisions in the future. When they are taught wise money management skills you better their chances of being successful in their financial life.
A proverb goes, 'train up a child in the way he should go and when he is old he will not depart from it'. The key is to catch them young. Give them age-appropriate teaching on financial matters. Teach them to differentiate between needs and wants at an early age.
You can teach 5 year olds how money can buy things by letting them walk to the counter and buy their favourite Cadbury. If you have 7 year olds you can teach them that money has to be earned by paying them small rewards for tasks they do.
High-schoolers can be taught about spending v/s saving, bank accounts and bank deposits, importance of insurance and basic types such as life, health, auto, etc. By this time they will have learnt how money grows in simple interest and compound interest. Take them along to the bank so they can observe how bank transactions are done. At this age you can talk to them about financial independence and about borrowing and credit.
Children in their late teens and early 20s will be excited about having their own bank accounts and debit cards. You can discuss with them the dangers of borrowing on credit cards and how to avoid debt by planning for needs beforehand, whenever possible.
Make it fun
Learning finance doesn't have to be like listening to sermons; it can be fun. When you want to explain a concept, try to use funny illustrations that kids will remember. Buy board games like Monopoly, Business that teach them the value of money. Look out for comic books on money and other books like King Midas, Adventures of Tom Sawyer for younger kids and get financial literacy books like Rich Dad Poor Dad for teenage kids. Orient them to websites on financial literacy for kids. Make them your assistants in drawing monthly budgets, writing cheques, paying bills.
Parents like to be generous while giving money to their children however you must ensure that they are taught the concept of accountability. Teach them the importance of not over spending their budget. While they should not be dictated on how every rupee ought to be spent, ask them once in a while how they spend their pocket money to teach them to keep track of money. Encourage kids to save money to purchase something they'd like to have. Say your 12 year old wants a new bicycle or a watch. Make a deal with him/her that when he/she accumulates a portion of the money required you'll chip in the rest.
Children will be more responsible with money when they know the effort it takes to procure it. You can encourage your older teens to take up small jobs at cafes, cake shops or eating joints to earn pocket money in the vacations.
Show it through your life
Children learn more by observing than by hearing. If you have taught them about frugal spending or having a list before shopping, don't do otherwise. If you want your child to have a successful financial life, you must show them how it can be achieved. If you have made mistakes, talk to them about it at the appropriate time and teach them how they can avoid it.