How to Raise Our Kids to Financial Awareness?

Introduction

Raising our children to become civilized adults and useful members of society is one of the most important responsibilities of parents. All of us want and try to give the best possible education to our children. A good education must ensure all-round grooming of children. The existing education system lays a lot of emphasis on some areas while leaving the others unaddressed. One such neglected area is personal finance. That is why some very brilliant professionals, who are a product of this education system, are found struggling when it comes to money matters.

The purpose of writing this blog post is to suggest a few ways of educating our kids on financial matters so that they grow into financially independent and responsible adults.

Limitation of Formal Education System

Ideally, education should have a very broad scope covering multiple dimensions. However, the current education system is narrowly focused on how to get employment. One of the important reasons why we want our kids to be well educated is that they should get a respectable job with a decent salary.

At the same time, however, the education system doesn’t address the issue of personal finance very well. What it implies is that, through education, our children can learn very well how to become a doctor or an engineer and start earning money but the education system doesn’t say a word about how they should manage their money with the purpose to become financially independent earlier in life so that they don’t work for money anymore but for other higher motives.

Importance of Teaching Personal Finance to Our Kids

Creating financial awareness among our kids and teaching them how they should manage their money has many advantages. This will enable them to solve the money riddle earlier in life and they will be able to pay attention to what they actually want to do in life. Becoming financially free early in life is a goal every individual should pursue.

In personal finance, starting early pays rich dividends because compounding gets more time to work its magic. The money gets managed very well when you have a long-term plan for it. It gives you astounding results when you put it to work and leave it there for a few decades.

Financial Grooming of Kids: Few Tips

Parents must plan well-rounded grooming of their kids and should not leave this important aspect to the school only. However, in this article, we will confine our discussion to financial matters only. Few tips in this regard are being shared here:

Give Them Unconditional Love and Undivided Attention

The starting point can be building an atmosphere of mutual trust and understanding at home. Kids should not be compared with their siblings or friends and class fellows for their performance and behavior. We should give them unconditional love and undivided attention. Their basic needs, in all dimensions, must be promptly met.

Do Some Boundary Setting and Goal Setting

Every healthy relationship should have some boundaries. These can be a set of dos and don’ts or clearly defined behavior from both sides. Don’t be too restrictive.

You may also set some realistic performance goals in academics and other areas.

Acknowledge their performance and display of good behavior with some rewards or prizes but if they somehow fail, don’t hold back your love. Only point it out in an explicit but polite manner.

Right from the outset, explain to them what you can and will do for them and what you cannot and will not do for them.

Lead by Personal Example

Children collect most of the data through observation and very little through listening. Therefore, try to inspire them by setting a personal example and leaving it to them how they respond. Keep the advice and criticism as short as possible.

Discuss Financial Matters Frankly and Frequently

In some cultures, financial matters are not discussed with kids at home. They are urged to concentrate on their studies, have fun in their spare time and leave the rest to their parents.

Instead, you should often discuss personal finance and investments with your kids. Discuss home affairs with them and seek their opinion. Make them clear about how important money is in our life. Neither exaggerate it nor understate it. Familiarize them with basic concepts of finance and accounting. Try to plant some ideas in their minds about personal finance on which you can work together subsequently.

Urge Them to Become a Problem Solver

Give them a framework to think about problems. According to their age, they should be able to define a problem, think of some solutions, be able to choose one and then execute it.

This can be their first lesson in business development as every business is built around solving an existing problem in the most efficient way possible. Money is only incidental.

Pocket Money

Instead of giving your children everything they want, it is better to give them a reasonable amount of money every month (pocket money) and then expect them to plan and manage their affairs within that money. If they need more, they should be urged and guided to start earning besides continuing their education. Teach them the importance of saving money as well.

Make Them Understand the Power of Compounding

Compounding can work wonders, especially for our kids, as they have a long way to go. Teach them, with examples, how their savings can be put to work while they are busy studying, and in about 20 years or so, it will turn into substantial sums.

Guide Them to Start a Side Hustle

Concurrent with their education, they should be motivated to start a side hustle to make some extra pocket money. It is fair to start expecting it during their teenage. In the process, they will learn so much about money management and life, in general.

Difference Between Needs and Wants

It can be very useful to understand this difference early in life. Everything that can be bought with money can be categorized either as a need or a want. We should make our children understand, through self example and other simple examples, that first priority should be accorded to needs and if we have some surplus money, which we should always work for, we can fulfill our wants and desires also.

Teach Them How to Catch Fish

We should not make our kids habitual of receiving free cash and unearned rewards. It is far better to teach them how to catch fish rather than giving them good and ample fish to eat. There is also no harm in clearly delineating which is your money and which is theirs. It is part of boundary setting. In the hour of need, of course, whatever you have is theirs. Unless you do this, it will be very difficult for them to set realistic financial goals and measure their progress.

Let Them Do What They Can Do for Themselves

A simple but very effective principle in raising our children is, “Don’t do for them what they can do for themselves”. Only teach your children how to do things and then let them do it themselves. Be available to them if they need any guidance. This is applicable to simple things like wearing clothes and shoes, eating, putting books in the bag, and many other small things but it has a big impact. Asking questions and being curious should be encouraged but we should also educate our kids to first think hard to find answers and solutions and then ask questions or ask for help as a last resort. This will help them develop their mental faculties and will also give them confidence that they can solve their problems.

Give Them Small Responsibilities at Home

Kids should be involved in every activity at home, according to their age e.g. cleaning, putting things in order, cooking, washing, helping, etc. Restricting them to studying, playing, and sleeping only is not healthy.

Every Adult Should Work

Try to convince them that as a matter of principle, every adult in the family should work so that the financial burden is equitably shared. This should be in addition to their studies. However, this should be done in a way that they do not feel any pressure. They should work as a matter of choice, not compulsion.

Leverage the Internet

We are very lucky to be living in the age of internet. It must be leveraged to make money. It liberates us from time and space compulsions and gives us so many choices. This opportunity should be used by kids.

Formal Education vs Self Education

We all try to give the best possible education to our children but we should not try to overdo it because formal education has its limitations. Instead, we must try to initiate them on a never-ending journey of self-education which is much more powerful in many ways. Again the internet is a very rich resource in this regard and must be optimally used by anyone who wants to learn anything. Formal education and self-education should go on side by side.

Monetizing a Passion

Every child may feel passionate about something or the other. It may be some art form like singing, mimicry, painting, poetry, etc, or some craft like making small things from paper, wood, or some other raw material. Their interests may keep changing. We should encourage them to take up and pursue hobbies in line with their passions. We may also draw their attention towards how they can monetize their hobbies and passions. Again, internet can be a great help in this regard.

Conclusion

The grooming of children should be aimed at turning them into confident, independent, and productive members of the family and society. An important aspect of their upbringing should be personal finance. They should be encouraged to imbibe basic concepts of finance early in life. This will help them become financially free earlier than our generation. After getting this challenge out of their way, they can live a more fulfilling life and can contribute much more.

How did you find this content? Please comment and give suggestions, if you have any.

My other articles you may find useful are:

How to Make a Personal Financial Plan – Basic Considerations

Personal Finance – A Suggested Checklist

Investment vs Speculation

A Brief History of Money

Why I Started a Blog on Personal Finance

Anatomy of Financial Risk

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