Tuesday, December 27, 2011

Teaching kids the ABC of finance

When it comes to teaching kids the ABC of finance, parents often find themselves walking a tightrope.

And why not, raising money smart kids is no mean feat, especially in today’s world where money doesn’t come easy.

Inculcating good money habits leading to financial independence is what all parents wish for their children. Here’s an account of captains of different industries on how they made their kids financially aware.

Ritesh Kumar, CEO, HDFC ERGO General Insurance

Learning to manage money is an important part of growing up for every child. Inculcating in the little one the habit of saving is perhaps something every parent tries to impart. The initial lesson in the journey to financial literacy starts with teaching them to put small savings into their piggy bank.

My kids got their exposure to banking when I would stop at an ATM and they would be with me, watching with astonishment the machine churning out currency notes. The lure to operate the ATM with a card of their own triggered the opening of their very own saving bank account.

Getting a personalised cheque book with their names printed on it gave them a huge thrill besides instilling a great sense of ownership. They would happily deposit their pocket money and any other money that they would get into this account. With banks building enough safeguards today such as limiting the amount that can be withdrawn from an ATM in the case of kids savings account greatly helps.

Awareness comes early today given the huge exposure to what they see around them and the televisionwhether it is catching glimpses of the stock price on the ticker as they surf through the channels or hear those catchy jingles like sar utha ke jiyo in ads between their favourite TV shows, their initiation into the fascinating world of financial products is much more than what our generation was exposed to when we were their age.

Sonal Dave, MD & COO, HSBC Securities & Capital Mkts

In the current highly competitive and dynamic environment we live in, developing financial literacy and responsibility among children cannot be over emphasised. It is desirable to introduce them to the basics of banking at a young age so they grow up to be financially responsible citizens making informed financial decisions.

This is the reason why we wanted to help our son Karan understand the core financial principles of earning, spending, saving and investing. It started in the early years through games such as Monopoly and later Life but the dayto-day practical cases were the ones that had a long-lasting impact.

Being from the banking world, it was possible to organise visits for him and his classmates in his early years to the bank to understand and see what happens backstage. To instill the habit of saving money, we opened his bank account when he was seven where his first deposit was the prize money that he had received—small in value but huge in learning.

As he grew older, we involved him in our discussions on our personal financials which helped him develop an appreciation for earning, responsible spending, tax planning , saving for contingencies and making sound investments. During the global financial downturn in 2008, we noticed that our efforts paid off as Karan was thinking and questioning the causes of the crises and offering preventive solutions.

Atika Khaneja, CEO, Collage Management

No one likes restriction of any kind. Yet the checks and balances are necessary because anything in natural form is prone to evil. That’s why I have structured a limit on the pocket money I give to my daughter. Money lessons are best learned at a young age. As a kid, she would often ask why she wasn’t given access to money.

This was the time we explained to her that money is earned the hard way and every penny should be spent carefully. When we got her an insurance policy, we made her go through the process. This ensured she starting talking about money.

She was eager to know what’s the purpose of buying insurance, how much money she will get after 25 years when the policy matures. She is now 16 and has a supplementary card linked to my account.

I keep on increasing and decreasing the spending limit so that she learns to manage under different circumstances. It also sends a message that the value of money never remains static.

Sulajja Firodia Motwani, MD, Kinetic

Whichever school of thought you belong to it is important that our children understand money, and its value . It’s equally important that they grow up with the right values about money. They must learn to earn with hardwork, learn to spend wisely, learn to save and learn to invest!

May be because my 9 year old son is a Marwari (me) and Sindhi (my husband ) lethal combo, he is very comfortable with commercial concepts!

He learned very early how to do “hisaab” when you go shopping, and learned that he wants to put “his” money in the piggy bank and spend “our” money!

Over the years, we have made an effort to imbibe into him, that one can do three things with money—spend it, save it or invest it and he loves that if you invest money, it grows! So he insists that all money he gets as gifts from his relatives must be invested!

Children should be taught concept of budgets

I have also found that we must teach our children concept of budgets. When we go shopping for toys, we tell him what his budget is and he gets quite involved in choosing toys or books up to the budget. He also remembers that he had underspent the budget of last shopping trip and gets it topped up! My friend who took Sid (my son) shopping for his birthday gift was amazed when he asked her what his budget for the gift was! This way they understand that spending is not unlimited.

Another useful experience is taking your child shopping at local store and teaching them how to compare prices of products and also how to evaluate price parity. One day, Sid and I went shopping for eggs and I picked up a pack of eggs which was nicely packed but was more expensive that another equal pack of eggs which as not having printed packaging. My son quickly pointed out that I am making a mistake and only paying for “advertising” !

I must add that I also once encouraged Sid to put up an exhibition of his art where he could display his work and sell it to family members and he loved the idea, but when I proposed the idea of donating the proceeds, he lost interest in the project! So I guess I still have to teach him the value of “giving” ! That’s next on my list!

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