Raising Financially Literate Children
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One of the biggest issues a young adult faces is not understanding how the financial world works. The somewhat theoretical knowledge that is gained in school is completely inadequate to help them bridge the gap in the practical world. As a parent it’s a good idea to teach your children about various financial concepts way before they become adults earning their own keep.
As with any other learning, it is important for the children to practice what is being said. This is the sure-fire way of ensuring that they not only understand the concept, but are aware of how to use it in real life. Here are some basic financial concepts that you should introduce your children to, along with some ideas on how you make them age appropriate for them to assimilate the information with ease.
A budget is simply recognizing that the resources available for you are limited and that you need to do the best with what resources are available. The easiest way to explain the concept of a budget to young children is to make them participate in the weekly grocery shopping. Have a list of items that you need to buy. Also have a fixed amount of money to spend.
Have them identify what is necessary and what is a treat which can be skipped if it doesn’t fit in the budget. Now visit at least three shops where you have different ranges of prices to buy the same item. For instance, a local grocery shop, a department store and consider an online delivery app. Have them evaluate which place they can buy all the items on the list within their allotted budget money. They can only buy the treats once they have purchased the essentials.
While they may not be able to pick up regular jobs as young children, there are always ways that you can teach them to earn some money. Having pride in making their own money as children is a great way to set them up to be financially responsible adults who will contribute well to their society. There are many tasks like raking leaves, running a lemonade stand, washing cars that they can do around the neighborhood.
An Additional idea is doing the laundry. Once they have mastered the skill of doing their own laundry around the home, they can offer laundry services to college students living in dorms, shops that need their linen done, and even offices which have a weekly requirement of laundry. You will have to supervise their jobs as well as cart them to and fro, but it will teach them the value of a dollar when they have to actually work for each one they earn. Feel free to find other out of the box solutions for jobs for children.
Debt is a growing problem for most economies. The ease of getting credit cards and charging their bills to it even when they don’t have any income to clear the debt, is a huge contributor to the rising bankruptcy filings. Explaining the concept of debt and avoiding not falling into a debt trap is vital for the wellbeing of your children’s future. It may seem like taking money from infants, but you are actually securing their financial future.
Give them a loan to make a purchase that they are unable to handle in a single month’s earnings. Now explain the interest rate at which you will be collecting the loan and help them mathematically figure out how many installments they will have to pay you and for how many months to clear the loan taken. As they figure out where they are losing money, begin to introduce the concept of saving for big purchases. This way they earn the interest before making the purchase and stay debt free.
Savings is a concept that is easily explained. The accruing of wealth through the power of compound interest may take a bit more doing. Have the children understand that they should take a part of their income each month and add it to a savings instrument. You can start with the bank account, move on to creating recurring deposits, and then as those begin to mature, you may introduce the concept of fixed deposits. This works well with children in elementary school.
Once your children are slightly older, begin to explain other saving instruments such as stocks and shares, mutual funds, real estate and gold. The idea is to gradually expose them to different types of savings instruments so that they know which ones are risk free and which ones have a greater risk of losing money. Showing them your own diversified savings portfolio is a good starting point to get them thinking about how they want to save for their own goals and purchases in life.
They can earn and save money for their own car, the college fees, and even the down payment on the purchase of a house. As long as they understand the financial concepts and how they affect their goals and ambitions, your children will be able to successfully charter their way across the ocean of financial obligations.
6th May, 2023