5 ways to teach children financial responsibility
Financial responsibility is an important concept for all age groups. If you are wondering how to start teaching your kids to be financially responsible, you have come to the right place.
When to start teaching kids financial responsibility?
There is no right time to start teaching children financial freedom and responsibility. Children can be taught how to save the money they receive from their grandparents and relatives before you start giving them allowances to manage their expenses. If you want your children to become a little independent, start this process when they are in middle school.
Five ways to teach finances to children
Whether it is a high school teenager or a kid in middle school, it is important for children of all ages to be exposed to effective money saving skills and responsible spending.
Here are five ways to teach your kids to be more mindful with their allowance.
1. Introduce the concept of ‘budget’
Budgeting is an integral part of learning financial responsibility. It allows them to learn to separate their needs from wants and plan their savings accordingly. Stick to an allowance schedule based on the child’s age. For instance, younger children can be given a weekly allowance while teenagers can have a monthly allowance. This will help children understand that they can only spend the money they have until the next week or the month begins. This step will allow them to consciously spread their spending over a period of time, and not go overboard with their spending.
2. Explain the value of saving money
Before giving your child their allowance, talk to them about the power of saving. While saving is often discussed with the end goal of spending, you can also explain how they can save for the long term. Such discussions with your child may differ according to their age. For instance, you can talk to a younger child about savings so they can buy something that is important to them. On the other hand, for young adults and teenagers, you can talk about long-term saving for college.
3. Create learning opportunities
Initially, a child with money will spend it all at once. Use this as a learning opportunity to teach them the value of money. Although this is a delicate space, resist the urge to give them extra money. Instead, show them how to spend their allowance without expecting more from their parents. This teaches them to manage their money better without the experience turning sour.
4. Talk about being charitable
Philanthropy has no age limit. In fact, it is a noble thought that can be instilled at a very young age. While on the subject of money, teach your children about various selfless ways money can be spent. This can be anything from donating to a charitable trust or spending some of the allowance to buy food for stray animals. Exposing them to this world will make them understand the value of money.
5. Show the downside to borrowing
Learning to handle money for the first time can be overwhelming. However, parents should draw strict boundaries when it comes to the allowance amount. Have a conversation about the allowance and what each party will do to honour their end of the deal. Do not give in to the child’s plea for extra money. Instead, sit them down and explain why it is important to work within the given amount and highlight the negatives of borrowing.
Piggy bank vs. physical bank? What should you choose?
When teaching about financial responsibility to children, set a few ground rules. Decide how much money they will get and where they can store the balance. Give them a small box to keep the cash they have saved up. Once they have a sizable amount saved up, talk to them about opening a bank account.
Piggy banks are great starter kit for children as it encourages them to save money, by giving them a sense of responsibility. On the other hand, having a bank account for the children allows them to focus on their future.
Today, banks allow minors to have a savings account with the help of a parent or guardian. Although children may not be able to enjoy the benefits of debit cards and online banking access, parents can request for mobile banking facility to keep track of the amount saved up in the account.
For young mothers looking to instill the habit of savings in their children, RBL Bank offers Woman’s First Savings Account. Any woman who is 18 years or above and an Indian Citizen should be the primary user of the bank account. Additionally, they can open a Zero Balance Kid’s Account for their children. They can use this account to encourage children to save and reap the rewards of compounding.
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