IntrRecently at a mall I saw another ‘wonder of the world’. Usually the most happening area is the toy area where you will see kids grabbing, crying, howling, praying and going to any extent to get the toy they want. I usually hate that area as who likes crying kids, but what I saw pushed me to write this article. Here is a how-to introduce the 2 opposite ends – Kids and Personal Finance.
There was this girl around 6-7 years and she herself went to the toy section, saw all the dolls on display. This means she checked the rates and size everything. And finally she selected two different dolls and took them to her father and said “Papa, I liked these two in our budget.” I was astonished to see the poise and maturity of this little girl. How can she know what is right and wrong for her- money wise…
Image courtesy of David Castillo Dominici at FreeDigitalPhotos.net
Look at the Irony… mine and your whole life revolve around money and we work hard to meet both the ends,… but our kids are not taught about this at school. They will be good in language or mathematics or civic life but when it comes to finance they lack basic terms.
Kids and Personal Finance
For a kid particularly below 8, ATM is the magician which prints money. They have no clue what is a bank, how do their parents receive salaries or income and what is the relationship of parents going to office and ATM dispensing notes at disposal? But as I mentioned, no one taught us this and unfortunately the education system has still not recognized the value of personal finance.
Finance is a subject a kid is going to use his entire life. Kid’s realization that money is very important in life starts in his toddlers’ days itself. When he sees that he gets ice-cream, candies and dresses only when dad hands over some printed papers to the shopkeeper. The restaurants he loves to dine can be left when the bill is paid. Sometime he is denied viewing of his favorite cartoon daily soap since his father forgot to pay the DTH subscription fees. He understands the value of money but the linkages are absent.
So the responsibility of educating kids and personal finance, come to parents. Most of the parents know the basics but lack on two things: the exact words/phrases/examples and the structure -when to teach what? Internet is full of subjects on parenting, developing skills for your kids but a course or guide on personal finance for kids… a big vacuum again.
Let me help you on this- kids and personal finance
Children need basic terms and concept to understand the larger financial topics when they grow young. For this one need to decide what we should be sharing with kid and what not. I have decided this age-wise so that we may also develop a structure.
| Age Group in Years | Term/Concept | How to explain it? |
| 2-5 | Money | The importance of money is that it can be exchanged with things that are required. Try to simulate the barter system of exchanging goods and why the currency or coins were required. Try explaining the denominations of notes and coins and attach it to additions and subtraction that kid is learning at his school. Show him your wallet and tell him to count or arrange notes and coins. |
| 3-7 | Pocket Money/Allowances | The pocket money is not about freedom to spend. It is a feel that kid experience that he can take decisions regarding purchases. Don’t confuse it with the piggy bank. Make the kid realize that pocket money is not to play but to take wise decisions. Here kid learns to prioritize his needs, wants and desires. Also he is introduced to world of being financially independent. |
| 5-9 | Savings | Kids always have things to acquire in mind. A toy, a board game, a candy is always there short term goal. Make them plan for it by introducing the simple concept of saving and contributing to the purchase. Tell him that if X thing cost Rs 200, you want the child to contribute Rs 20 this time. Explain him how you save for vacations the family enjoys or some recent purchase like a house or a car, which was purchased by your disciplined savings. |
| 5-9 | Salary/Income | The correlation between your hard work and income is very essential not only for his understanding in finance but for his future life. A kid needs to understand that it is easy to spend but hard to earn. Parents spend entire day in office to earn a decent living and it is not the ATM machine that supplies the money benefits. |
| 5-9 | Budget | Introduction to household budget to kids is very important. Budget helps them to understand the planning for a purchase and tradeoff between 2 or more goods. He understands what is available to spend and what is being invested for future use. tell him the concept of disposal income and savings. Let him correlate from where the money is coming and going. |
| 10-14 | Loan | A kid needs to know when it’s better to leverage and when not. Clearly explain him/her that the monthly/small expenditure is done from monthly earnings/savings but larger expenditure needs to be loaned partly. The credit is not bad if taken to achieve a good asset. Tell them about education loan. |
| 10-14 | Interest | Not everything is free. If you take loan you have to pay and pay more to compensate the time you will take to pay back the principal. More time you take more is the charges or interest. So to avail low interest one needs either pay early or take minimum loan. If the child is higher class you can discuss compound interest with him. |
| 10-14 | Credit Card | Credit card or revolving credit is costliest and its trap is the ugliest. Although it’s convenience and reward makes it perfect to be a part of wallet. You need to make understand the kid that you hold credit card not to stretch your purchasing power, but to avail the benefits like security by not carrying cash and managing emergency expenditure. It’s a delicate matter because I have seen fathers boasting credit limits and the gains of point system. |
| 10-14 | Investments | Explain the kids that investment is current allocation of money to earn more money over it to fulfill some big goal or just to accumulate more money for future. Emphasize the difference between the ideal money and money which is invested. |
| 10-14 | Taxes | When you appreciate good roads and cleanliness of the city in which you live, go it bit further and explain how taxes helps develop better infrastructure and social safety. Tell him taxes are deduct from your salary/income or you deposit them at a stipulated time to help country grow. Don’t tell them you hate taxes (even if it is true). |
Meanwhile working on this piece, found this on web:
Financial regulators to conduct national level test for school students – CafeMutual
(My view is before test can a capsule course be introduced so that kids have basic understanding of money and related issues. I think schools can come forward and develop these modules in-house.)
RBI, SEBI, IRDAI and PFRDA have appointed NISM to conduct this test.
In an effort to increase financial awareness among children, all four financial regulators of India – RBI, SEBI, IRDAI and PFRDA have joined hands to conduct national level test called National Financial Literacy Assessment Test (NFLAT) for school students of class VIII to X. The test will be conducted on November 28 and 29 across the country. The regulators have appointed National Institute of Securities Markets (NISM) which has further set up National Centre for Financial Education (NCFE) to carry out this exam. In a press release, IRDAI said, “NCFE’s NFLAT is a step in the direction of financial literacy and financial inclusion. By conducting a national level test, NCFE plans to motivate school students (of classes VIII to X) to learn the concepts of finance and also measure their financial awareness for inculcating important life skills leading to sound financial decisions later.”
Kids and personal finance
The duration of the test will be 60 minutes in which students will have to answer 75 questions. The test will be conducted in both English and Hindi and would include topics related to basic concepts of finance. Syllabus of topics is available on http://www.ncfeindia.org/nflat The test is free of cost and registration is on first come first serve basis. Students can win laptops, tablets, medals, cash rewards along with certificates by scoring marks in this test. Top 30 schools will be awarded cash rewards of Rs.25000 along with a trophy.
Please share you views/experiences about this topic Kids and personal finance in the comments section.
Things that are inculcated in younger age will help kids in forming good habits, no matter how you convert money matters are the most important thing that needs to taught to children..
you nailed it by terming ATM’s as money printing machines which is pretty much a norm for kids. 🙂
Thanks for your comment Rajesh!!!
It’s really important to establish linkages.. The kids today knows everything but doesn’t understands everything… Here comes parents n teachers responsibility. Hope you liked the article…