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Money Lessons For Your Children

We all want to give the best to our children. We feel that our children do not need to go through the same experiences, difficulties and compromises we had when we were children. And true to our wishes, our children have experienced a very comfortable life where things have been very easy for them. They have been exposed to social media and television at a very early age and have huge aspirations and dreams.

Financial literacy can start at home with the following everyday topics.
They have purchased something online (either with a parent or alone)
They reported being confident with paying with a debit card instead of cash
They stated they keep track of their balance electronically
They check if they receive the right change back after making a purchase
They compare prices between stores when shopping

Perhaps one concern we all have is that real life is tough and our children need to realise that. They need to realise the amount of hard work and effort that goes into earning money. As parents, we all wish that our children are much more sensible and careful when it comes to dealing with money. However, this is not something that will be easy for you. Inculcating the right understanding, respect and value for money and developing the right habits from an early age will take time and patience on your part, perhaps many months and even years. In this article, we will explore a few of the ways we can let our child on the path to financial literacy and right habits.

Money doesn’t grow on trees:

Teaching your kids the value of a dollar is an essential part of their financial education. Many parents choose to teach this lesson with a weekly allowance by requiring their children to complete chores or tasks. This can emulate the concept of hard work resulting in money, which can then be spent on things they want. The hardest part of this lesson may be sticking to the arrangement and standing your ground when your child forgets to complete their chores and, therefore, won’t get paid. But this part of the lesson most closely mimics reality, so make sure to stick to your guns.


Saving is important:

You can start instilling the importance of saving in your child at a very young age, and the lessons become more complex as they get older. For example, when your child is younger, you can teach them the importance of saving by having them set a portion of their allowance aside for a desired toy. Older children and teenagers can learn the value of saving by putting money away for higher ticket items, like a car or a vacation with friends. You can help motivate this saving by offering to match the cash they can save. Saving for goals like this is an excellent opportunity to highlight the benefits of high-interest savings accounts and compound interest. Show your child how to using these tools will help them reach their savings goals sooner.


Savings is the most important habit one should focus on developing. With basic habits of recording and budgeting, savings should come easy with patience. Show them how they can cut few corners /spendings and save more. Motivate them for saving with some extra rewards from your end once their savings targets are achieved. For eg., if they manage to save 20% of their pocket money, reward them with say extra 20%. Motivate your children to save larger amounts for bigger and bigger gifts/events. For eg., if they have managed to save say Rs.3,000 for one item/gift, instead of going out and spending, show them better options of say Rs.5,000 and ask them if they would like to have that. Put in your rewards as well. Let them take pride in saving big and then spending. From toys to cycles to electronics to even bikes, this habit can be great learning for your child.


Recording: The first step which everyone should do is to ask and teach the child to record all his/her spendings. Please do not comment or make any negative observations here as the child may stop recording those things or hide them from you. Let them record everything without fear. There are many mobile apps which help record expenses or instead this can be done the old way – pen & paper or diary.


Motivate them to keep track of their spendings and give them pocket money with the small condition of maintaining the records and sharing it with you for next pocket money. Once there is a track of spendings over a few weeks /months, ask them to make observations. Take a back seat and let them self learn.



Budgeting is the skill that can make or break your financial future, but startlingly few schools teach even rudimentary lessons on how to manage money. This is where you, the parent, come in. If you have a budget, give your child access to it so they can understand how much money it takes to run your household, and what an average level of spending in on various line items (for example, groceries). By showing your child your budget, you’ll set a positive example for when they start to manage their allowance or part-time job income and later, for living expenses when they move away from home.


Once the children are habituated to keeping records, budgeting should come naturally. Follow a fix periodical pocket money /budget for them. To begin with, this can be for say a few days for small kids, then for every week and slowly progressing to å monthly allowance for more mature children. Once the children are habituated to keeping records, budgeting will be very easy as they know they have to live within that budget for the rest of the period. Just ask them their daily balance without making any judgements or comments. Your role should only be to be strict while giving your pocket money. Ask your children for any major events in advance and adjust your pocket money in advance but not post the event.


The difference between wants and needs:

Understanding the difference between wants and needs is a fundamental money lesson. Teach your child that a want is something they would like to have, for example, a chocolate bar or movie ticket. A need is something more essential, for example, shelter or utilities. Although most children don’t have to worry about covering the cost of their needs, this knowledge is crucial. Having your child pick out wants and needs from your grocery cart can be a fun activity to instill the habit. A want may be cookies, and a need may be vegetables. Understanding the difference between these two categories will help your child determine what they need to spend money on now and what can wait. When they become more independent, hopefully, they will make mindful decisions as they shop.


Patience: An essential element of learning is patience and this has to be inculcated slowly. There can be many ways of teaching this. For example, if your child has asked for any particular toy or gift, let them wait for it. You may either give an appropriate future date for the same. Alternatively, you may divide the money and pay them equally over many days while asking them to save the same. Eg. If a toy costs say Rs.2,000, pay them Rs.100 daily for 20 days and make them wait slowly till the full amount is accumulated.


The consequences of credit:

Not fully understanding how credit works has landed many young adults in financial hot water. Starting when they are old enough to receive an allowance, you should start teaching your child about the concept of loans and interest. You could do this by offering your child an “advance” as a portion of their allowance, which they will then have to pay back, with interest. This lesson will teach your child that there is no such thing as “free money,” and all loans must be repaid eventually. Going over the math with your child can show them that using credit can end up costing them more money in the end. However, you should try and give your child as much information as you can. Some parents may approach credit with scare tactics. Although credit can be mishandled, the lesson should focus on using credit responsibly because, as an adult, they will encounter it time and time again. From renting an apartment to getting a mortgage, credit is essential.


It’s okay to make mistakes:

Finally, making mistakes as a child can be a valuable lesson, with no lasting impact. Instead of impulse buying and racking up debt, they’ll endure a few weeks of repaying a loan on their allowance. Instead of blowing their student loans on food and entertainment, they’ll budget adequately and learn to make it to the end of the month before they make it to the end of their cash supply. These six money lessons may seem tedious to teach and enforce at times. But ultimately, they can lay the foundation for your child to grow up with a solid understanding of money and can help them reach their goals.


Responsibility: Letting children learn with some real responsibility is a good way to teach them great values. One can begin with small responsibilities like caring for toys, asking one to get repairs for broken toys, caring for small pets like fishes in your aquarium or birds or other big pets like dogs for teenagers. Pets can be a very good way to develop empathy as well. Put as much responsibility on them as you can. Try not to interfere even if things may start looking bad, let your children take responsibilities and learn the consequences of not doing what is needed. Of course, you can lend a helping hand when the child is doing something. You may even give the responsibility to say buying food and other things for your pets to the children and allocate a budget for the same.


Participating: As your child grows and learns, start involving them in planning your household expenses. Let them also have their own share of inputs on things like outings, entertainment, purchase of electronics, holidays, etc. Value their inputs and discuss options. For eg., if they want holidays at some premium location, ask them if they are ready to forego /cut some spendings and wait longer? Also start to involve them in sharing and monitoring things like investments and insurance. Teach them as and when you start sharing. Slowly ask them to maintain all your financial records and documentation. Also let them participate in your meetings with your financial advisors /insurance advisors /tax consultants, etc.

Post Author: admin