Making your children money manager

Financial Planning | admin | August 31, 2011 at 9:27 am

Deepali Verma has a 12-year-old son and a 9-year-old daughter. She and her husband believe in giving all the advantages of a good education and comfortable lifestyle to their children.

Since they live in a metro, the kids are exposed to a lot of activities, entertainment and goods that are expensive. Deepali worries about the effect this may have on her children's ability to appreciate the value of money.

She is convinced that starting early is the key to making them understand money and manage it. She wants to know about the steps that she should take so that her children learn good money habits.

Deepali is right in believing that the children should start early to learn about money and the best way for her to do this would be to allow them to handle it. Giving them a monthly allowance is the ideal way to get them to understand monetary transactions.

The children must know the period for which the allowance has been given and the expenses they will be expected to meet. They must be told that they cannot expect the parents to replenish the funds if they spend all of it right at the beginning.

This will help them learn how to control expenses within the income they have. They should be given an incentive to choose saving over the instant gratification of spending. Deepali can do this by matching the amount that they are able to save at the end of a month. However, this offer must include a caveat on when and how the money (saving plus contribution) can be spent.

Another step that Deepali can take is open a bank account for her kids. Banks offer minor accounts that are linked to those of adults. Opening such an account and depositing the children's savings in it will help them see the way their money grows over a period of time. Deepali should also use the opportunity to teach the children about saving for a goal.

She can encourage them to choose a particular goal and help make a plan to save for it. The sense of achievement when they manage to buy from their own savings what they have aimed for will be a significant reinforcement of the benefits of saving money.

Initially there are bound to be slip-ups. Deepali must be supportive and help them get back on track rather than give up. Most importantly, Deepali and her husband must lead by example. When children see the parents live by the same rules of money that they are propagating, they will imbibe these better.

Source: Economic Times