It is amusing to note the kind of views kids have on money. I know of a little one who thinks she can solve world poverty by simply getting an ATM at home. Smart girl! Life is magical when you are still discovering the world and forming your ideas. While I hate to break the spell, it is important to gradually unravel the science behind this magic. Unlike natural sciences like the law of gravity which kids test on their own (by throwing your shoes and watches out of the window), money facts are not something that will get ingrained into their minds naturally. It has to be understood systematically with deliberate efforts. As your child observes the economic activities happening around and develops their views, it is important to get a few facts established well in their mind as a means to build the right foundation:
1. Money is a means of exchange
This is a simple fact that kids understand quickly with little effort from your end. At some point they refrain from grabbing the attractive products displayed at shops and stop to ask for you to ‘buy’ it instead. Never mind the screaming and wailing. Rejoice that an important aspect has been activated in their mind - they understand the primary purpose of money. You may celebrate!
2. Money must be earned as income
Children usually carry an opinion that a debit card with password is all that is needed to take care of financial needs. They must be made to understand it is not so. One must have a skill and deploy it purposefully to 'earn' money. Your child must know, you can withdraw only as much as you have earned. Children are often projecting their lives in their mind and for that reason they must be able to think of different ways in which money can be earned. It would help to have a distinct perception of money that is earned as (i) profit from a business activity and (ii) salary from a job. That would serve as a sufficient basis. You need not get into the details of different heads of income. They will be able to take it from here on their own and develop the idea further.
3. Income must be earned by fair means
There is no limit to imagination and more so for a child who is still settling into the man made world. Now that they know money must be earned, creativity starts playing. At this point, it gets a little tricky to explain ‘fair’ and ‘unfair’ to a child. Attack it by establishing a rule – Money must always be received in exchange of a ‘product’ or ‘service’. Safe to say, any other form of receiving money is unfair. Once they understand the meaning of ‘product’ and ‘service’ they will be able to bifurcate ‘unfair’ ways of earning.
4. Loan is not income
This is tough to make a child understand. Even a few adults are yet to get enlightened to the fact that loan is something that must be repaid. Ask the bankers and they will narrate their sad NPA stories. A Loan is a product in itself. And it is exchanged for interest. If you take a loan, you are obligated not just to pay interest but also to repay the loan amount - Important financial education for every child (and yes- for adults too)
5. Tax is not punishment
Irrespective of what your personal sentiments on taxes are, your child must not develop an aversion towards the concept. They must see it as a duty of every citizen to pay the government. In return, we enjoy the common public utilities. Punishment happens, when one doesn’t pay the tax (penalties and imprisonment too!). This difference must be clear in their mind.
Children like to discover things on their own. They learn better that way. You may know a lot on financial matters. However, it is important; when you are explaining finance to a child, refrain from making it a tutorial. Clarify some and create a bit of a mystery for them to explore and solve. That makes it exciting for them. Discretion in financial matters is a priceless trait to possess. A right foundation plays a vital role in grooming your child into becoming a financially responsible adult. It is never too late to start.
1. Money is a means of exchange
This is a simple fact that kids understand quickly with little effort from your end. At some point they refrain from grabbing the attractive products displayed at shops and stop to ask for you to ‘buy’ it instead. Never mind the screaming and wailing. Rejoice that an important aspect has been activated in their mind - they understand the primary purpose of money. You may celebrate!
2. Money must be earned as income
Children usually carry an opinion that a debit card with password is all that is needed to take care of financial needs. They must be made to understand it is not so. One must have a skill and deploy it purposefully to 'earn' money. Your child must know, you can withdraw only as much as you have earned. Children are often projecting their lives in their mind and for that reason they must be able to think of different ways in which money can be earned. It would help to have a distinct perception of money that is earned as (i) profit from a business activity and (ii) salary from a job. That would serve as a sufficient basis. You need not get into the details of different heads of income. They will be able to take it from here on their own and develop the idea further.
3. Income must be earned by fair means
There is no limit to imagination and more so for a child who is still settling into the man made world. Now that they know money must be earned, creativity starts playing. At this point, it gets a little tricky to explain ‘fair’ and ‘unfair’ to a child. Attack it by establishing a rule – Money must always be received in exchange of a ‘product’ or ‘service’. Safe to say, any other form of receiving money is unfair. Once they understand the meaning of ‘product’ and ‘service’ they will be able to bifurcate ‘unfair’ ways of earning.
4. Loan is not income
This is tough to make a child understand. Even a few adults are yet to get enlightened to the fact that loan is something that must be repaid. Ask the bankers and they will narrate their sad NPA stories. A Loan is a product in itself. And it is exchanged for interest. If you take a loan, you are obligated not just to pay interest but also to repay the loan amount - Important financial education for every child (and yes- for adults too)
5. Tax is not punishment
Irrespective of what your personal sentiments on taxes are, your child must not develop an aversion towards the concept. They must see it as a duty of every citizen to pay the government. In return, we enjoy the common public utilities. Punishment happens, when one doesn’t pay the tax (penalties and imprisonment too!). This difference must be clear in their mind.
Children like to discover things on their own. They learn better that way. You may know a lot on financial matters. However, it is important; when you are explaining finance to a child, refrain from making it a tutorial. Clarify some and create a bit of a mystery for them to explore and solve. That makes it exciting for them. Discretion in financial matters is a priceless trait to possess. A right foundation plays a vital role in grooming your child into becoming a financially responsible adult. It is never too late to start.