Why should you impart financial education to your children?
With the uncertainties surrounding the global economic and financial scenario it is extremely important that today's youth is well aware and prepared to face the impact of any crisis situation that may arise in the future. Moreover, parents are often seen complaining that the younger generation tends to become casual about money matters and behave as if money grows on trees. However, it is important for you to understand that the duty of imparting financial education is not just limited to schools and colleges. As parents you must also take efforts to create financial awareness among your children from an early age, so that they value money and make lesser mistakes when they grow up.
The following reasons will discuss the importance of imparting financial education to your children:
Many parents are not comfortable discussing money matters with their children, especially if they themselves are in a financial crunch. However, like other valuable lessons that you teach your child, it is extremely important that financial education also be imparted to children at the right age, so that they don't commit any errors and take the right financial decisions when they grow up. Also being a role model to your child, it is important that you yourself plan and organise your finances in a systematic manner for them to follow suit.
- To inculcate in them the habit of saving
It is important that you induce your children to save money from the early years of their childhood. The habit of saving once formed can last a life time and help build your child's future. Encouraging your little one to use his / her pocket money judiciously and saving a portion of that money in a piggy bank is a good way of instilling the idea of saving from an early age. For little older kids, you can start a monthly allowance and motivate them to save their surplus in a bank account. This will not only prevent them from becoming reckless spendthrifts, but also enhance their mathematical skills. Agreed, we all want to give the best to our children and never want to see them unhappy. Infact many parents in India also completely fund their child's post-graduation and marriage. However, unless you motivate your children to save and teach them the value of money from childhood, they will probably never understand the importance of saving and make a lot of financial mistakes when they grow up.
- For their long term financial well being
The impression that you make on the minds of your children about money matters in their childhood will be a long lasting one. Money management skills once developed can make your kids financially independent once they grow up. In order to shape their vision and create an understanding about finances, you can make your children write down their short term goals (such as buying video games, clothes, shoes) and long term goals (such as purchasing a bike or saving for college education). This will help your child prioritize and realize his / her objectives. They will become structured in their approach and plan for their goals in life systematically.
- To create awareness among children
Although today's generation is very smart and are fast learners due to their inquisitive acumen, it is important to create financial awareness amongst them. You must make them understand that money is related to work and that parents have to put in a lot of hard work to earn money and fulfil the needs of the family. You should educate them about the impact inflation can have on the future value of their goals. Encourage them to save for each of their goals separately. Introduce them to various instruments where they can invest their savings. You see, this will teach them about the power of compounding and make them a more organised person in the long run. They will also start valuing every comfort and luxury that you bring into their lives and not take money matters for granted. Having light hearted discussions about the happenings in the financial industry and the impact it could have on the child's savings, be it however big or small, will increase your child's knowledge and his / her interest towards money matters.
- To achieve the family's financial goals
It takes discipline and efforts from all the family members to ensure that the financial goals of the family are fulfilled. You must discuss the financial goals and monthly budgets with not only your spouse but also include children in such discussions. Only if all the family members take efforts for curbing unnecessary expenses and work towards a common goal can the financial objectives of the family be met. Moreover, you must also involve children while creating a financial plan or while taking financials decisions for the family, especially the ones that are going to affect them. For instance, when you are planning a family holiday, then how to budget and save for the same, or when you are creating a plan for your child's higher education then how to invest your hard earned money for it. You see, children learn a great deal by observing. Discussions like these will create curiosity in their mind about money and drive them to think about how to manage it.
- To help them understand the family's finances
The financial education imparted by schools and colleges and the guidance given by parents makes the child well-equipped to understand the financial situation of the family. It is imperative that the kids are aware about the family's financial standing as this not only augments the children's knowledge, but also help them to step into the shoes of the 'finance manager' of the family in his / her absence. Hence they will not be misled by anybody in case some unforeseen contingencies occur in the future. Allowing them to go through your bank statements and credit card bills will also teach them the impact debt can have on the outflow of money.
PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.
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