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The Secrets to Raising a Smarter Child
- By Inderbir Sandhu, Ph.D


Money Management for Children - Part I

By Andrew Loh

Teaching money management to your children should preferably start, when they are about five years old. Financial experts suggest a number of methods and techniques that you can use to teach your children about money and help them develop saving attitude in the process. Money management is a positive attitude that comes by disciplined training. Positive money management helps your children develop very good fiscal habits as well. Money management can start at an early age because young children tend to learn quicker and faster. You can also start teaching your children about money management when they ask you questions about money.

If you want to raise children, who know and understand how to respect and manage money, you must ensure that you are creating an ideal situation for them to learn and understand about the basics of money. You will be the financial advisor for your children, though in a simple and understandable way. Better and easy to understand principles and methods, should help you in this regard. You may need to teach the most basic aspects of money before venturing into complex parts of money management. There are five basic issues that dictate the subject of money management. These issues will provide a launch pad for your children for thinking about money in a positive way.

These five basic issues are:

Responsible for money: This is perhaps the most critical parameter for success with money. You should convince your children to show immense respect for the hard earned money. When you children learn how to be responsible with money, they will take their first step towards financial literacy.

Honest with money: Honesty is another critical and important parameter that helps your children to be true to their heart while spending money. Honesty is the best policy and it is the only good policy that your children must inculcate in their life.

Generous with money: You must teach your children how to share their available resources with other people, especially food articles and toys. As your children this positive attitude, you can expect them to participate in a number of community activities.

Gratitude: Your children should be thankful to the God that they have something to spend unlike a number of other children who may never find money to spend. Your children should also show a sense of gratitude towards money.

Self-identity: Your children should never be too much materialistic! An obsession for materials could lead to reckless spending later in the life.

There are a number of excellent reasons to teach your children about money and fiscal management. Make sure that you are starting it as soon as possible. One thumb rule here is to start teaching your children when they ask you to buy some things for them. At this age, your children should be competent enough to learn about money. As your child becomes older, he or she will also get ready to learn and master the art of earning and saving.

Tip: Money is too emotional and cajoling! Money does not stay in one place for long! Money is also meant for spending. However, reckless and careless spending may lead to financial disaster. If you want to teach your children about money, ensure that you are talking openly without any inhibition about the subject. Some parents make the mistake of telling their children that they do not have any money to spend! This could be very dangerous as words like "we cannot afford to buy that thing" are negative and they can make your children pessimistic in future. Instead, you can say "What can we do to afford it?". Not only this is more positive but also encourage the children to think of a way to solve the money problem rather than succumb to it.

You can teach four basic money management skills your children. You will need to drive home these basic parameters into the mind of your child to ascertain that they master those simple principles. You may wish to repeat these key points continuously so that your children can remember them for their life.

Earning: This is a very sensitive issue because everyone in this world has a source of income that comes to him or her as earning. You may wish to explain your children from where the money comes from and how you earn money. You may also wish to tell them about different ways of earning money.

Outcome: Your children will know from where the money is coming and how hard you are working to earn that money. In all, your children must know and understand that earning money is actually very difficult!

Spending: Earning money is very hard, while spending is the easiest thing! You should teach your children why wasteful and reckless spending could derail the family economy. Teach them the major differences between needs and wants. If your children are younger, provide them the examples of spending for their school luncheon and spending for a hamburger. You may wish to make your children solely responsible for their spending. Also, make sure that their spending never exceeds the money allotted to them. This works very good for your children who are in the age bracket of 10 and 15.

Outcome: When you teach your children about different aspects of spending, he or she will become more responsible about money. Your children will also understand that excessive spending will run into troubles in the future.

Saving: Money can multiply only when you conserve or save it! The most important part of money management is learning how to save money! Your children can create a solid income base, when they conserve some amount of money for the future. To do this, you should teach your children about the positive things about saving and its immense potential for generating lot of income in the future. To save some money, your children should avoid spending it for some time.

Outcome: The power of savings can mesmerize your children1 Bring them a piggy-bank to save some cents and dimes. When the piggy becomes heavier, your children will be so happy that they have lot of money in their hand! When the piggy bank becomes full, you can open a bank account for your children to deposit the savings for future use. Savings has many positive sides and your children will learn them in double quick time!

Borrowing/Investing: When your children learn about earning, spending and saving, it is the right time to teach them about borrowing money from others (banks) and investing. This is perhaps the most difficult part of money management as borrowing could be infectious for someone, who is not skilled in saving money. Borrowing also can be double-edge sword. It comes with many negatives if you borrow money to spend on holiday and household items that you don't need or afford! However, borrowing money (from bank) to invest on a good property or land could be a very great way of investment which could potentially reap great profit. Teaching children the concept of 'leveraging' by borrowing money from bank is a good investment skills if one is not 'over-leverage'.

Outcome: When your children learn and understand how borrowing money from others or bank could leads to financial liability if the money borrowed is not used for investment purpose.

Continue to read Money management for children - Part II here.


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