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6 Ways to Inculcate Financial Responsibility in Young Children No school or college teaches money management skills, so the responsibility is squarely on parents to mould their children's financial future

By Raj Khosla

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Financial discipline is one of the most important lessons a parent can impart to her children. No school or college teaches money management skills, so the responsibility is squarely on parents to mould their children's financial future. A child who learns financial prudence early in life will be better prepared for the challenges in the real world than somebody who is uninformed, spendthrift and generally careless with money.

This children's day take a step towards inculcating financial responsibility in your child. Here are a few ways you can instil financial discipline in your kids.

Lead by Example

Children start picking up money habits very early in life, so be careful what message you send to your kids. If you tend to overshoot your budget when at the shopping mall or the family eats out too frequently, the kids will certainly notice and internalise this as kosher behaviour. You can't be splurging yourself and expecting them to be prudent with their money.

Similarly, missing EMIs and payment deadlines, reckless borrowing and arguments over money with spouse are some of the other behaviours that should be avoided. Remember, how you handle your finances today will define how your children will manage their money tomorrow.

Hand Them the Reins

A monthly allowance is a good way to teach budgeting. Give a fixed amount to your child and let him use it for his expenses. If you let teenagers manage their own budgets, they will understand the value of money more effectively. The objective is to let the child set his own budget and utilise the money as he wishes without any restrictions.

Of course, as a parent you need to keep tabs on how that money is spent, lest your child picks up undesirable social habits. In most cases, once a child is given control, he becomes a more careful spender. This is particularly useful in these times of online shopping and food ordering apps.

Give them Plastic money

It is a good idea to open a bank account in your child's name and give him a debit card. You can even give an add-on credit card that is linked to your own card. As the primary cardholder, you can set limits on the card given to your child. Initially, allow your child to make small monthly purchases with the card.

Most importantly, teach your child the importance of maintaining privacy of the card details. Review and discuss the monthly statements with your teen. This will also help you monitor your child's spending pattern.

Set Goals for Their Demands

You can help your child set his financial goals and draw a roadmap for achieving them.

If your daughter wants an expensive gadget, tell her to start saving for it and offer to put in a matching contribution every month. So, if she saves Rs 3,000 a month and you put in another Rs 3,000, she would have saved about Rs 36,000 in six months. If she falters and misses on a contribution, you also don't contribute anything that month. Soon she will realise that her savings will grow if she contributes regularly. Once she gets into the habit of saving for goals, she will be able to manage her money better.

Teach Delayed Gratification

Patience is a key factor of financial success, and parents need to inculcate this in their children early on. Introduce your kids to the concept of investing and compounding. Open a fixed deposit or recurring deposit in their name and show them how the money grows if kept untouched for the long term.

Older children can be introduced to equity investing and mutual funds. Most kids will want to try their hand at equity investing. Don't try to dissuade them. Your job as a parent is to empower them with sufficient knowledge and caution them about the risks. Sure, they will make their mistakes but in the process pick up valuable investing lessons.

Let them Repay Education Loans

If you have taken an education loan for your child, make him a co-borrower and make him liable to repay the loan. The outstanding loan will instill financial discipline in the child once he starts earning and force him to put away a big chunk of his salary. This way the child remains responsible for the liability and will have to work hard to pay it off. Don't rush to repay the education loan if the child fails to land a well-paying job. It will send the wrong signal and make the child believe that he can always depend on his parents for financial aid.

Personally, having raised two financially responsible children, I can say the captioned exercise is indeed a daunting task, yet a most fulsome & satisfying experience.

Raj Khosla

Raj Khosla, Founder & MD, MyMoneyMantra.com

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