Parenting #5 – Financial Prudence

There are three types of dependencies – physical, emotional and financial. When a child is born, all the dependencies exist. As the child grows up, physical dependence reduces. Emotional dependence will be there till the age of around 23-25 years of age of the child. After that the child has to be financially independent.

We have seen that children learn from parents; they mimic them. We have to encourage them to save the money received as gift. We could get them a piggy bank and teach them how to use it. By the time they are 10 years old, they will understand about a bank and passbook, deposits and withdrawals. We can teach them the concept of compound interest. We need to teach them how money can grow in a savings bank account. Unfortunately, schools don’t teach about personal finance. So, children have to learn it from parents.

We should not discuss the quantum of investment and wealth. But, we can discuss budget; what to buy and when to buy; is it within the budget? Is the purchase for satisfying a social status need?

Older children can be taught about Mutual Funds and equity markets. We should however, caution them about the perils of trading in equity market.

Children are often impatient and look for immediate rewards. Through saving money, we can make them experience delayed gratification. Let them wait for a while before they are handed over things on demand.

Encourage your child to take loans for their education and also repay them by themselves. This way, they will get into a financial discipline.

They have to be taught what is the value that they are getting out an expenditure. Is the purchase worth the amount spent?

While making the child realise that we should be spending within our earning limits, we cannot emotionally burden the child by telling them that we are undergoing a lot of stress and pain in order to earn.

Financial discipline in a child starts at an early stage. The child picks up nuances by seeing his parents’ spending habits. The way unreasonable demands are dealt with by the parents put s a foundation to the child’s view towards finance.