Financial prudence is something that needs to be inculcated early. Especially, in this era where plastic has taken over from real cash, children need to be taught that ATM does not mean all-time money. Instead, one can only withdraw the amount which one has in their account through the ATM (any-time money) card.
So how should one go about doing that? For starters, start talking about money as soon as the child is old enough.
Says Gaurav Mashruwala, financial planner, "I got my four-year daughter to plant a tree and water it everyday so that she understands the concept of growth."
Slowly he intends to give her a glass jar where coins would be put in and when something is bought from those savings then, the number of coins would go down. In other words, the rise and fall in the jar would be indicative of growing and falling wealth.
Says Sajag Sanghavi, financial planner, "One should start encouraging the child to save from the age of 6-7 years." Ideally, you should open an account for the child as soon as he/she is born.
In India, traditionally family members come to see the new born with small amounts. This amount could be used to open this account. Also, you can make investment in your child's name from this account.
Sanghavi feels that the children should use this account to deposit their savings as well. For instance, if the pocket money given for a week is Rs 1,000 and the child saves Rs 100 from it, get him/her to save it in their account. In fact, you could even add some amount from your side. This would explain the concept of interest to them.
"Also, keeping them informed about their financial needs for education is important," adds Sanghavi. That is, they need to know that they would require large sums of money for education after graduation. To achieve this, put some amount of money in their accounts and keep on passing cheques to mutual funds through this account.
Another way to make them realise the importance of money is, to teach them to budget themselves. For this, you need to include them in your budgeting sessions.
Mashruwala also recommends writing down the budget and once pocket money is being given, tell them that Task A, B, C and so on will need to be covered under their budget. Finally, the most important lesson that they can learn is, from parents themselves. With a limited expenditure habit for yourself, you can set an example for them to follow.