Robert Kiyosaki in his bestseller Rich Dad Poor Dad says,It is foolish to simply say to a child,get a good education. It is foolish to assume that the education the school system provides will prepare your children for the world they would face upon graduation. One of the most important life skill is money management. Gone are the days of the traditional piggy bank.The times have changed and the kids born today are exposed to the latest electronic gadgets,credit cards,malls etc which has impact on the way they treat money. While the previous generation believed in saving more and spending less the young generation is more tuned into earning more so that they can spend more. Why Money Skills For Kids Nothing is more lovely than seeing your kid grow up. Her first smile,first time she says mama or papa,her first step and various other precious firsts. In that unconditional love you would tend to provide the best to your children. Whatever and whenever he/she asks for,you would do anything to make that wish come true. However,unknowingly you are sowing seeds of a bad money habit in your kid- that of not differentiating between a need and a want. It is your primary responsibility to make them learn basics about money so that they know how to deal with various money related problems once they grow up. Lets divide the learning age of your kid in 3 parts 3 to 10 years,11 to 15 years and 16 to 19 years and discuss them in detail. 3 To 10 Years of age The first step when your kid crosses 3 years of age would be to start educating him about identifying and counting various types of coins and notes. Paying your kid for some good work would help your kid to understand the concept that money needs to be earned and it is not free. You can assign various chores to your kid like helping his/her mother in kitchen,keeping her room clean,finishing her homework within certain time etc for which you will put some money in her piggy bank. A good drill would be to buy 2 piggy banks for your child. The money he/she would need in longer term should be put in one and for urgent needs in another. The point here is that your kid must develop a sense that short term and long term planning need to be differentiated. Putting a thought at this age would be prudent. Remember that your kid definitely needs to go beyond the piggy bank as that can become boring for the smart kids of today. The next level is to take your kid to the bank and explain him/her about bank account. You can ask your kid to save a certain amount say Rs 5,000 and then you would open a bank account for him You must show your child,the cash counter,demand drafts and cheque books and teach how to fill them. It is important for your kid to hear no from you occasionally. You may have to deal with the emotional blackmailing of crying and screaming by your kid. Do not expect a magic in few days. But remember that your patience today will help your child understand an important lesson in life-that of delaying gratification. Life is difficult and there will be numerous occasions when he will have to buy a smaller car,smaller apartment or cut short his foreign holiday due to lack of resources. It is training that you give now that will help him cope with the pressure he will undergo later on. 11 To 15 Years Of Age This is the age when your kid will start facing the peer pressure and start comparing what others have and he does not have and ask you to buy it for himThis is the time when you need to start taking your kids financial education to the new level. Even though you have money,always emphasise to your kid that there is a limited supply of money. Take your kid for shopping and let him choose whatever he/she wants but within the cost limit that you prescribe. Children love being given choices. Your kid would love it too and you wont mind if there is a lesson in it as well. You would never want your kid to fall into the debt trap in future because he did not know the difference between a need and a want. Your kid now has a bank account for 2-3 years now and on the money he/she keeps in the bank there is something extra which can be earned which is called interest. Now is the time to expose your kid to the various investment options which can give him returns according to the nature of the inherent risk they carry. So you can start explaining him about mutual funds,fixed deposits,provident fund,government bonds,stocks and gold as various investment options. Choose a list of 5 good equity diversified mutual funds and ask your kid to pick whichever he/she likes. Tell that if you will invest a small sum ,say Rs 500 ,out of his/her savings every month by way of a systematic investment plan in a mutual fund. Show him the statement every month where he/she could see the units bought from his/her money and also explain why his/her investment has gone down or gone up based on the performance of mutual fund. Explain the implications of debt to your kid through example of a credit card. As the tag line of the movie EMI said- Liya Hai Toh Chukana Padega,your kid must understand that the money used from credit card needs to be returned to the bank and if not returned in time there are interest implications. The concept of debt must be properly ingrained in his mind at this age itself so that your kid becomes responsible and avoids getting into debt trap when he is a grown up and has a family of his own. 15 To 19 Years Of Age Now is the age when your kid is no more a mere kid and is about to step into the world of adulthood. You need to rev up the teaching engine now and explain him some basic facts of financial life. It will be prudent to help him understand that insurance and investment must never be mixed and that life insurance can be bought at a much cheaper cost in a young age. Your child must buy an insurance once he/she gets into the first job or reaches the age of 23-24. The next would be to tell your kid that there needs to be tax paid on the income earned so that it doesnt come as a shocker when he/she gets the first pay check which is lesser than what was promised during hiring. Also explain some basics of how taxes can be saved. Show your tax saving mutual fund statements,provident fund,home loan EMI interest/principal statement etc and explain how they help in saving taxes. By the time your kid turns 18 he should be smart enough to operate his bank account,understand basics of mutual funds,both health and life insurance,basic knowledge of stock markets,and individual taxation. Do not expect him to understand things in few days. It will take time and you must allow him to make mistakes. Mistakes are important part of the journey and its better if your kid makes mistakes now and learns from it. Even if you are able to help your kid understand the above few basics related to money and its management,he will be ever grateful to you for sorting out his financial life. You will never want your kid to get into a debt trap or fooled by some agent into buying a financial product that will become a burden for him in long term. So wake up now and help your kid become money smart. Its never too late to start.
