“The child is the father of the man,” goes an oft-repeated quote. It is so true. What we become in life is largely determined by our childhood and upbringing. Whether it is the career we choose, or the way we behave as adults, it all depends on our experiences as children. This also holds true with how we handle our money.

As adults, we earn, save, and invest our money in different ways. Some of us are very careful with how much we save and the way we choose to invest our savings. And some of us are pure speculators. Either we don’t save and leave everything to the future. Or we save and speculate with our savings by buying investments that promise fast returns.

The way we handle our money in our working life determines how well or worse-off we are after we retire. Those with utter disregard for money, savings and investments, end up living a miserable post-retirement life. They are often neck-deep in debt and have fewer options to repay them.

And those who are smart and sensible enough to save and invest with discipline bear the fruits of their efforts. It’s hard for us to imagine a tough financial life for ourselves in our ‘golden’ years. And it’s even tougher to think of this eventuality for our children, whom we care for and love so much.

So why not take every opportunity to teach our children the value of money early in their lives? Why not teach them to lead a disciplined life when it comes to treating the money you earn, or what they are going to earn in the future? In fact, educating children about the handling money properly is of utmost importance (also because schools don’t do that). And the earlier every parent realizes this, the better it is for them and their kids. The question is – how to do that? How to teach children the value of money, saving, and investing…habits that most of you wish you had formed in your own childhood? See, it’s better late than never.

If you are already onto this mission, you are doing a great deed. But if you haven’t started as yet, it’s better to do it now. Let me make it simpler for you. Let me tell you the 3 key lessons you must teach your children about money like I’m trying to teach mine.

Lesson #1: Teach Them that Money is Earned by Hard Work

My 6-year old girl used to believe earlier that money is produced by the ATM machines. Just punch how much you want and it will give out that much to you. What she did not understand was that the money the ATM throws out was a part of what I earned by way of hard work at my job.

It is important to tell your children where the money is ‘actually’ coming from i.e., from hard work. Also tell them that if they continue to expect the ATM for money to meet their never ending desires, you (the caretaker parent) will one day run out of all money to meet their needs in the future

Lesson #2: Teach Them the Virtues of Saving & Investing

Saving is a virtue, the benefits of which we realize only over a period of time. Thus it’s important for us to make our children early starters on this front. Teach your children that there’s more to money than just spending. And teach them by example – through your own saving habits. So if your child wants to buy a videogame that most of his friends have, ask him what’s the cost of the same, and how much he would need to save every month to reach that target.

If he understands this simple math, he will easily recognize the virtue of saving to meet a future spending goal. He will also realise that if he saves more every month, he will reach his target even faster. Now, while the need and art of saving can be taught to a kindergarten kid, the need and means to invest these savings can be taught only after your kid reaches a certain higher age

Investing helps us in making money from our money. It’s like planting a tree, watching it grow slowly, and then enjoying the fruits it bears. Teach your children the simple concepts of interest and the power of compounding as they grow in age.

While ‘saving’ will help them understand how they can meet their short term goals (like buying a videogame, or a doll-set), ‘investing’ will enable them to understand how they reach their long term goals (like buying a car, or jewellery). Teaching them about investing will also help them understand that earning more money (from investments) will get them closer to their goals.

Lesson #3: Teach them About the Dangers of Debt

This probably isn’t a lesson a child of 6 or 7 years can understand. But teenagers can grasp this concept very well. So if you are parent of a teenager, discuss things like loans, credit cards and other debts with her. If you want her to learn by doing, you can have her take out a small personal loan (that she has to repay out of her pocket money) to purchase that expensive gift she has been eyeing for long She’ll soon learn that making regular debt and interest payments reduces how much she has left to pay for other stuff, and how the debt can become overwhelming.

Lesson #4: Teach them About the Dangers of Debt

This probably isn’t a lesson a child of 6 or 7 years can understand. But teenagers can grasp this concept very well. So if you are parent of a teenager, discuss things like loans, credit cards and other debts with her. If you want her to learn by doing, you can have her take out a small personal loan (that she has to repay out of her pocket money) to purchase that expensive gift she has been eyeing for long She’ll soon learn that making regular debt and interest payments reduces how much she has left to pay for other stuff, and how the debt can become overwhelming.

Conclusion

Your Children, Your Money. . .So It Starts With YOU

Teaching kids about money is a controversial thing. No one argues that you should teach them. But the how is a tougher question. In general, I recommend three guiding principles you can use to effectively teach your children about money:

1.    Educate yourself

It’s dangerous to teach something you don’t know about yourself. So, learn as much as possible about budgeting, saving, investing, cutting expenses, and reducing debt. You can become a good teahcer to your children only when you are armed with such knowledge.

  • Lead by example

Children don’t understand when you ‘tell’ them things. Instead, they understand when you ‘show’ them things. So, if you are teaching them the wise lessons on money but are doing the complete opposite, they’ll learn more from your actions than your words. Like, to teach them about controlling spending, you have to do so yourself. You have to lead by example.

  • Teach them one habit at a time

You have taken years to learn the basics about money, right? So, don’t expect your children to become skilled financial planners overnight, or in a month, or even in a year. Your goal should be to teach them the above and other lessons on money over the course of their childhood and adolescence. Teach them one lesson at a time, and then move on to the next. Teaching your children the value of money is very important to their – and your – future financial success. And most importantly, if they do achieve their financial goals – teach them to always give, share, and help others.

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