Financial Literacy Week: How to educate your child about finances
India is this hub of fusion of diverse cultures and communities, but a common thread that cuts across all of these differences is our approach to money and children.
By Lavika Aggarwal, co-founder, akudo
Every culture has a unique relationship with money. In addition to collective conditioning, individual experiences, whether socioeconomic, psychological, historical, or family, affect how you view personal finances. India is this hub of fusion of diverse cultures and communities, but a common thread that cuts across all of these differences is our approach to money and children.
We have always suppressed any conversation about finances around children or teenagers. It is not part of our culture to involve children in household financial discussions. A taboo subject often left to the recluse of parents or guardians. But slowly, as teenagers gain access to the Internet for free, they are exposed to new concepts, new ideas, and an overload of information lost between facts and Ponzi schemes. The result is that misinformed teenagers grow up to make unwise financial decisions as adults.
It is also understandable that it is difficult for an Indian parent to engage in such conversations. They may be apprehensive about the negative effects of money on a child’s development. Being exposed to the evils of materialism at a young age (according to society, money is the root of evil) is a constraint, coupled with the worry of overwhelming the child with unwanted information and unwarranted economic stressors.
Well, the benefits of discussing personal finances with your kids go way beyond waiting for the banks to teach your 27-year-old son about mortgages, tax benefits, and interest on loans.
List some ways to spark interest and positive conversations about personal finance with your kids below.
Start by differentiating between needs and wants
The first step to overcoming apprehensions about the negative effect of talking shop with your teen is to talk about their needs and wants. When the child understands that desire is the only driver of his decision, it is time to re-evaluate and reconsider. Critical thinking is key here, the ability to objectively analyze a situation and develop an appropriate solution to a problem. It is crucial that you establish the consequences and suggest alternatives that are likely to be equally, if not more, desirable.
Money has always been colored without sex
There’s an endless loop of discussion in new-era fintech companies about how and why women make up such a small part of their customer base. It doesn’t take much to connect this to our socio-cultural roots. Women in India have less access to finance than men, have significantly reduced spending abilities, are less exposed to financial management issues, and are repeatedly excluded from financial decisions. Resolving this gendered view of money is not easy, but it can start early by financially educating and empowering children, regardless of gender. The mothers led entire households on “Ghar kharch” and then spared some; we indeed underestimate our daughters and their power to transform and reengineer.
The rule of rewards and incentives
It might sound straight out of an American family sitcom, but there’s a lot of truth to it. Positive consequences often encourage behavior change in children and adolescents. Rewarding your child for saving some of their pocket money or using it for a good cause rather than just candy will build a stronger belief system.
The 50-30-20 rule
This one is for older teens; younger kids might be dazed by the numbers. The 50-30-20 rule is to live by whether your child has an independent income or depends on you for that. The budget rule is elementary. The income should be divided into 3 parts, 50% of it being spent on your needs, 30% on your wants and wishes and 20% directly on savings. This rule of thumb for budgeting has helped so many households in times of need when taught from an early age is sure to make your child more financially savvy.
Take advantage of new era fintech and its services
While you can start with good old teen savings accounts at a traditional bank, there are plenty of start-ups that have come up with personalized prepaid cards and banking services for teens. When technology exists to help your child learn the basics of personal finance and money management, it’s wise to use those tools to your advantage. To create not only responsible teenagers, but also financially responsible adults for the future.
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