How to make your kids money-smart

India, Dec. 7 -- Gurgaon-based architect Ishvinder Kaur, 36, thinks her five-and-a-half-year-old son Vikram is too small to be taught about money. Nevertheless, Vikram has his own purse, which he doesn't forget to carry whenever he goes out cycling with his mom or friends. Kaur says she didn't introduce the concept of money to him rather he introduced it to himself. "Once we were out cycling and crossed a retail store. He wanted something but I was not carrying my wallet and I told him so. Two or three similar experiences later, I found him taking out a small bag from among his toys, which he said was his purse. He thought the purse was enough to pay the retailer," she says. Kaur used the opportunity to tell him that he needed to carry money in his purse to be able to buy himself something and gave him Rs. 5 with which he bought some sweets later.

Like Kaur, a lot of parents may not make a conscious effort to teach their kids the value of money, yet it is bound to spring up at some point or the other. In the Indian context, teaching good money habits becomes more challenging with social values closely intermeshed with the value of money per se.

Pulling up your socks

Like it or not, children love to copy their parents and learn most from home. So, if you want your child to wash her hands before every meal, you need to first ensure you do the same. The same is true for most other aspects of life, including your attitude towards money.

"Children learn by example. To start with, parents need to understand that money is a means to good things but not an end in itself," says Suresh Sadagopan, a Mumbai-based financial planner. So if as a parent, you want to splurge on an LED TV, when you already have an LCD at home, your child's demand for a touch phone may not be unreasonable.

"Money is one form of prosperity and abundance in life and is a physical expression of the same. Parents need to model abundance of love, appreciation, the act of giving and sharing with joy in their behaviour," says Srividya Rajaram, clinical psychologist, Adiva Healthcare Pvt Ltd.

So before you even start on your kids, ask yourself some questions: do you have a budget, save regularly, set goals, can control your greed when shopping? Children learn from behaviour, and only behaviour, Rajaram adds.

The earlier, the better

Like Kaur, many would think that money concepts should be introduced when a child grows up enough to understand it. But that is not the way it works. As a parent, you would stand for certain values, which the child would start grasping very early; the idea is to take this instinctive learning forward in a meaningful and constructive manner.

In fact, "the earlier, the better", says Rajaram. There is no age to introduce the concept of money. So what could be the tools to help one do this apart from self-discipline? "At a very young age, the concept of a piggy bank can be introduced, which could go on to include games relating to money and eventually, when the pocket money starts, explaining the basics of expenses and saving," says Sadagopan.

So if you give your kid a coin when going for a walk and tell her to keep it safe with her and buy a candy at the end, it may help her be careful with money.

Creating a value system

Every rupee that can buy a good or service has a monetary value attached, but it may not necessarily be enough to calculate its worth. And you need to communicate that clearly to your child. For example, when you consider a card your child made for you invaluable, tell her so, not forgetting to explain why.

Putting a monetary value to the things you do and comparing them with what you could do with it may help develop choices and the ability to prioritise things. "Teach value by example. A movie outing is equivalent to, say, one week of groceries, or to put it another way, x number of ice creams. Similarly, a mobile phone a child may want may be equivalent to 10 days of work for a parent or half a month's family expense," says Sadagopan. Such comparisons may make it easier for your child to choose between a car and downpayment for a small flat when she grows up.

"Children should also be sensitised to the virtues of charity and sharing," says Sadagopan. Don't let money overpower you even if it is in abundance, which is in sync with traditional Indian values.

Teach through experience

Letting children experience certain things is the best way of teaching them.

Often, parents complain of handling peer pressure. But if you treat children as young adults and make them participate in home finances, certain things may become clear to them. This will not only help handle peer pressure but also help the child monitor his own expenses and spend her pocket money well. In case of privileged families, "with slightly older children, parents should share how some privileges are funded in life", says Rajaram.

Another example: doing charity by itself may not make sense to children. However, taking the child to a slum area in, say, the winter season and pointing out to the need of blankets and proper clothing may leave a lasting impression.

Basic handholding

This can be done using a savings bank account and pocket money as tools. Encourage your child to set small goals, such as buying a battery car. Once the child accumulates enough money through lump sums received from parents and relatives and regular savings from her pocket money, she will get a lifetime lesson in saving and patience.

"When the parent gives a sum as pocket money, they should sit with the child and help him budget it. The discipline of staying within the budget should be taught. For good measure, if they stay within the budget, there can be a bonus which the child could get to reinforce a good habit," Sadagopan says.

Or if they reach a goal, you can add an equal amount as bonus to buy, say, an iPad. "If they can save something from their pocket money, buy something of their choice," says Rajaram.

As much as parents want kids to be understanding, they themselves need to accommodate certain aspirations of kids and be sensitive to their requirements.

Published by HT Syndication with permission from Hindustan Times.