What The Kids Need To Know About The Personal Finance?

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You might be wondering, after reading the title, why I have chosen such a serious topic like personal finances in reference to kids. As a parent, I understand how much we love to pamper our kids with luxuries and try to fulfill all their wishes. We want to secure them from any and every danger and provide them all the comforts of the world. But while doing so, we should not lay aside the fact that they also need to be prepared for the real world; and managing personal finances is an important part of that reality.

Phase I (3 Years – 8 Years)

– Money Does Not Grow On Trees

The first lesson your child needs to learn about money is that it does not grow on trees; people work hard to earn every single penny. Tell them from the very beginning that the joy of buying things from their hard-earned money is irreplaceable in this world. They should understand the value of working for money.

Give them small household duties from the very beginning and offer a gift or extra pocket money every time they do something good.

– Knowing The Difference Between Want And Need

It’s obvious that kids can’t differentiate between their wants & needs and they usually spend money on toys and games without thinking twice. They need to be taught how to distinguish between wants and needs.

For instance, you can tell them that dressing up is a need that everyone has but buying branded clothes for that is just a want.

– Sometimes You Have To Wait For Your Favorite Thing

Another lesson in personal finance, your kids need to know in the early years is that they may have to wait sometimes to buy the things they want. Be it the princess set or the first bicycle, tell them they cannot get everything the moment they want it.

Give them small goals and make them save money in a separate saving jar to buy the thing they want.

Phase II (8 Years – 12 Years)

– Train on Spending Reasonably

You need to tell your kids about spending reasonably on the things that are necessary within a set amount. Creating a budget is also an art that your kids need to learn. You can ask your kids to create a budget for all their expenses for a month and help them in cutting down the budget to leave room for savings. Additionally, you can also give them a particular amount and ask them to use it wisely for an entire week so that they know how to manage their finances while following their budget.

– Teach Importance Of Saving

Saving is an important aspect of money that your kids need to be taught before entering into the complicated real world. While your child might want to spend all the money they’ve earned through the household chores, on birthday or as pocket money, they need to learn the art of saving at an early age to enjoy its benefits in the future. Give them a saving jar and tell them to keep 10% of their allowance in that jar for future to know about real savings.

Phase III (12 Years – 16 Years)

– Smart Investment

Your kids need to know about various investment options like mutual funds, stock, real estate, bonds and other commodities. An important thing to be explained here is compound interest to let them know how to invest their money smartly for better returns. Put every quarter of the one dollar they’ve saved with you and return them the money when they really need it with added interest to make them understand the benefits of investment.

– Credit, Debts & Loans

By the time your kids hit puberty, make sure that they are familiar with financial terms like credit, debts, and loans. Debt and loan can be explained together by citing the example of house/car mortgage; how you took money from bank/financial lender at certain interest and have to pay back the money by a specific time otherwise the commodity bought could be ceased by the lender or bank. Teach them to wisely use credit or debit cards for only buying things that they can pay for right away otherwise an interest would keep on adding to the sum.

While these were the basic things that your kids need to know by the time they turn sixteen, there are other important things like taxes, credit score etc., that you should teach your kids by the time they graduate from high school. You can also take financial investment consultancy services so that your kids know the concept of money and can manage their personal finances wisely.

Author Bio

Ankit Gupta is the managing head at ExportersIndia.Com and has been handling all the financial decisions of the company for the past 15 years. Owing to the passion for his profession, Ankit loves to research on various ways to manage finance for people of all ages and pens down his thoughts on the same in his write-ups. You can connect with Ankit on his Twitter, LinkedIn and Google+ accounts to read his other blog posts.