How I taught my child about money parenting at home

Irrespective of the career my child pursues as an adult, one of the key things they need to learn in life is how to manage their money. As a parent, it’s my responsibility to pass on this skill and the earlier it’s done, the better it is. After all, learning about money and how it works is a survival skill in the literal sense. We need it all our lives and even then we choose not to talk to our kids about it. In fact, there has been an unsaid taboo about talking to family members when it comes to money matters. This often is the difference between a smart household and a regular one with respect to achieving financial literacy. You see, financial literacy begins at home. That’s why my money parenting technique makes my little one more confident and aware of how to handle the big bucks.

Money management is a science that can be taught and all it takes are seven easy lessons that can be started at any time.

I began teaching my child about money and how it works from as young as three years old. The idea of money is to pay a certain amount for goods or services that you want or need. The concept of money also includes the fact that you need to earn a living by taking up work that you enjoy doing.

Budgeting a great tool that helps my child organise his finances and something we taught him at home. An allowance was his first income and he needed to learn how to manage it. Budgeting helps my kid not only to spend his money wisely but also what to do when there’s a deficit or surplus. It’s your first step towards explaining to your child how personal finance works. Children need to learn some things on their own but I make sure to always be available to answer any queries and guide them if they are going the wrong way.

Now that my child understands how money works and all the possibilities that it brings along with, the next concept they need to learn at home is that of saving. I began my kid’s savings journey with a piggy bank where he slides those coins earned by doing different tasks at home. Got something extra from grandma? In the piggy bank, it goes. The idea is to inculcate the habit of savings from a young age, which will later reap a bigger reward. With older children, savings can be an easier concept to explain with the reward more tangible in the form of video games, clothes, trips and more.

Budgeting leads to savings and these savings can be invested to gain higher returns. Children who understand this concept will see them having a massive impact when it comes to their financial independence. Children who understand the benefits of investing are prone to make smarter choices with money as adults as well. I use this as an opportunity to teach them about different avenues of investing like fixed deposits, mutual funds, stocks, recurring deposit schemes and more.

Kids may have smaller goals like a new pair of shoes or a gaming console that they are saving up for. However, show them what long-term savings can help them achieve. This is particularly true for kids in their teens and moving to college. Compound interest is that silent friend that never knew they needed. A larger goal will help them plan for their education well and achieve a debt-free status faster than their friends. I also encourage kids to take up part-time earning opportunities that can be monitored and contribute to their holistic growth.

As enticing as it may look, investing in different avenues also carries several risks. Be clear about the fact that kids should invest only the amount they can spare after meeting their needs. Do remember to teach them the golden 50/30/20 rule, where 50 percent of their income goes for needs, 30 percent for wants and 20 percent for savings. If you gamble away your income, you are accruing a debt of 80 per cent. I’ve taken the time out to explain the concepts related to buying insurance to safeguard their own financial security and that of their loved ones. Have an open discussion about having health insurance, life insurance and even motor insurance. It’s an integral part of our financial commitments and the earlier your child understands this, the better it will be.

And finally, kids need to learn about taxation and its importance right from an early age. Most education systems do not give enough importance to teaching how taxation works and why it’s necessary for the progress of any country. That’s the reason why it’s often frowned upon rather than being seen as a natural deduction. However, this can always be taught at home. By preparing your child for taxes and their workings, you are essentially contributing an ideal citizen to the country. Teach them about ethical practices on how to save taxes, how to file taxes and the basic components of a tax structure. While it may sound complicated, kids do learn quickly and will be able to comprehend how taxation works even better than some adults. Remember, an early start will make your child smarter and more aware of how to deal with life at large as an adult. I know I won’t always be around to shield them, but I can always train them to handle what life has to offer - both good and bad

Find out your unique #MoneyParenting style and how it impacts the way you teach your kids about money. Visit eastspring.com/sg/money-parenting for more.