10 Tips to Raise Financially Responsible Children

The earliest memory I have as a child about money is when I was about 6. I had received the most exotic candle a child at 6 could wish for, from my grandmother. When you lit the candle, an angel would emerge once the wax melted. After hoarding it for about 3-4 months and flaunting it to my younger brother and elder sister from time to time, I decided it was a good time to sell it. So I went ahead and gathered all my toys and set up a shop (this was the first business I ran). My brother was my (unpaid) assistant. And our only customer: my sister. I now know that it would have been wiser to have used both my siblings as customers! Well, a lesson finally learnt is better than none at all. So anyway, as children, we were given an equal allowance from time to time, it was around 50 bucks. All my toys and stationery in the shop cost about 5-10 bucks, except my single most prized possession - the angel candle. I priced it at 30. After an hour of my sister and me haggling, she finally handed me the 30 bucks, and although I felt sad about parting with my possession, I was happy that I had been able to sell my product and get 60% of her allowance! The moment we concluded the transaction before my sister could leave the shop, a smug smile appeared on her face, and she said, “I would have paid you 50!” What followed was a day-long arbitration in my mother’s court of mad children, finally settled with the transaction being declared void because of course I relentlessly pursued both of them to believe I was cheated into the deal! I can’t help but laugh at how evil I was at 6. (Just in case you are feeling sympathetic towards my sister, let me clarify that I have been whacked by her enough times in my life, to compensate her for this failed trade adequately). But something from that incident stayed with me, and I learnt not to sell myself short.

Countless experiences from our childhood shape the adults we become. Whatever vocation you choose, you will earn money and knowing how to manage that money will seriously impact the quality of life you and your family live.

Since schools do not teach investing and money management, here are 10 things to try with children:

1. Encourage them to start small businesses - deal with challenges and different types of people. Something that they sustainably manage for a minimum of 3 weeks. It can be trading small goods, or baking, or providing services. It doesn’t matter what they do. Let them learn to put themselves out there. Help them get out of their shells. They learn marketing, networking, sales, operations, human resource, client servicing, etc. on a small scale.

2. If you give your children a fixed allowance, make it compulsory for them to invest 20% of it each month. It becomes a habit when they grow older and start earning.

   1. Assumption: Income - Expense = Savings

   2. Prudence: Income - Savings = Expense

3. Discuss the household budget with them. If they are old enough, make them in charge of handling money and making some payments on behalf of the house.

4. Talk to them about what assets you hold in your portfolio and why you prefer certain assets over the others. Maybe even encourage them to self-study options that you don’t have expertise in.

5. In an age where instant gratification is the norm, not the exception, it is worth discussing how delayed gratification and compounding can make their future better off.

6. Our society normalises debt to the extent that you can get your hair restored on EMI (I’m not kidding, click here to check). Talk to children about what taking a loan means and the drawdowns of not being able to return it. You can guide them about when it’s ok and not ok to take debt.

7. If you have built an education fund for your children. Talk to them about how much college costs, how you plan to fund it, and what instruments will you be using. Let them track the portfolio over time. It can help generate gratitude for the education they ultimately receive that money.

8. Teach them concepts of inflation, opportunity cost, taxation, time value of money, etc. and how they impact real returns from investments. Help them get bank accounts, pan cards, aadhaar cards, and teach them how to handle these basic documents.

9. Money is not just a pragmatic decision. It has all sorts of feelings and life consequences involved. Talk to them about the emotional costs of being financially dependent on others (on parents, siblings, spouses, etc.). It's usually a trade-off between a frugal independent life vs a lavish dependent life. It might encourage them to want to be financially independent.

10. Most importantly money is only a part of life, not the purpose of our existence. We must strive to strike a balance between saving enough for the future while ensuring we live our lives to the fullest in the present. So don’t forget to teach them the joy of spending too!