Money is an important thing in our lives, and as a parent, we are possibly concerned about how our child will manage his/her money life responsibly once he/she starts earning.
Teaching your child money skills is a crucial life skill as it will help them not only to save money but also help them learn delayed gratification and being content. As your child enters the teenage years it becomes important to cultivate money habits that can help him/her to start saving money, budgeting carefully, spending mindfully, and investing for a secure financial future.
Equipping your child with money skills early in life and in their initial earning years could save them from extreme money behaviour such as making impulsive money decisions like shopping on credit, becoming a socializing spendthrift, or alternatively becoming a tightwad.
So, with that in mind, here are 5 ways you can help your child cultivate useful money skills and help him/her to be financially responsible.
- Hand over the responsibility – At some point, your children will need their bank account. If they are getting pocket money, it may be worth opening a bank account with them in their teenage years. Once your child turns 18, they will be able to operate their account on their own. As a result of this, it will remove any parental or guardian access and they will be solely responsible for their money. Build control measures if you like, including asking questions on how the money is being spent, at least till they are independent earners.
- Build a Monthly Budget – If your child is getting pocket money or earning through a part-time job, a budget will help your child set parameters on how s/he spends her money. Inculcating this habit will help them track their spending patterns and will also help them understand their money behaviors.
- Credit cards – Your child will be bombarded with credit card offers once they start to operate their bank account. Using a credit card judiciously helps in times of emergency, Hence, it is important that you teach your child the importance of credit cards, when and where to use a credit card, and why it is important to pay the bill on time, or else they may become a credit card victim who pays high-interest rates for not paying the bill on time.
- Educational Loans – Before applying for student loans, ask your child how they are going to pay back the educational loans. Also, talk about the alternatives like cheaper options for studies, working part-time, or becoming teaching or research assistants while in college, which could help them to start early in paying back their educational loans. This could also add significant value to their CVs.
- Investing – Early investing is beneficial as time is on the child’s side which would help money compound for long periods. As soon as your child starts earning and gets his/her first salary, ask them to start investing a part of their money. A Systematic Investment Plan (SIP) in a mutual fund could be a great starting point for its flexibility and discipline.
Avoid forcing them to buy houses and take housing loans too early, as it takes away their independence and flexibility. As a parent we all want our children to be financially sufficient and responsible. However, both of these go hand-in-hand. The habits mentioned may sound basic in nature but they are the foundation pillars that can help your child to be responsible towards their finances, which could help them in the long run.
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