Financial discipline isn't something that they teach you at most schools. Therefore, this responsibility typically falls on parents. Once your child is a teenager they will likely be ready for these vital lessons. If they are able to learn these important skills before adulthood, it will help them throughout their lives. Here are 4 steps which you can take to teach your teenage son or daughter about financial discipline.
Value of Money - Pay Them An Allowance
The first step towards teaching kids the value of money is to actually let them manage it themselves. To get this process started, you may need to start paying them an allowance. One or two generations back, the prevailing mindset in India used to be that parents wouldn’t let their kids handle money. Allowance or “Pocket money” was very rare.
However, when children are learning to handle money, an allowance is actually a very low risk method for them to learn about some vital life skills like intelligent spending, regular saving and bargaining for deals. It also teaches them the value of patience. For instance, most e-commerce sites in India have sales during the festivals of Dussehra, Diwali, Holi, Christmas and New Year. By waiting for these sales, your teenager will be able to buy stuff at bargain prices. But for this, your teen needs to have the discipline to both save his or her allowance money and the patience to wait for these festival sales.
Teach Them Manage Their Money
Next step in teaching teens to manage their finances is to actually get them started with a system. Let’s say you are giving them an allowance of INR 500 per month. You may decide that this allowance needs to come with ground rules. For example, you might require that they allocate a certain amount to charity or personal savings. Let’s say your teenager donates INR 25 out of the monthly allowance towards charity and saves INR 75. That still leaves INR 400 as spending money. INR 25 may not seem like a lot of money, but will add up to a more substantial amount over the course of a year.
For example, even if they save just 15% of their allowance and donate just 5%, they would end up donating INR 300 per year and saving INR 900 per year. For a teenager these are significant amounts, and may help your child develop a charitable mindset as well as a certain saving discipline.
Help Your Child Open a Bank Account
Once you've got your children saving, it is important to show them why saving helps them in the long run. One way to do this is by opening a savings account in their name, and periodically showing them how much savings they have accumulated. This will teach them how interest rates work and how money grows over time.You can also use this opportunity to teach them to be careful with their debit cards, as well as the basic principles of password and PIN security.
There are several savings accounts available to teenagers offered by major banks in India. For reference, please refer to the table below.
Discuss Your Family Spending With Your Teenager
Not only should you be helping your teenager practice financial responsibility, it is important to also discuss their spending habits as part of their education. This activity is especially helpful for older teenagers. Once your teen has spent a few years managing his or her allowance, you might choose to expose your child to your family spending decisions. This is a big step and teaches as it shows them how you decide to make financial decisions. When your teen realizes the range of household expenses (e.g. groceries, utility bills, rent, cable, internet) and the trade-offs between these categories, he or she will truly start appreciating the need for financial discipline.
Consider a Supplementary Credit Card
While teaching kids the importance of financial discipline, you should also teach them how to manage credit cards. If you feel comfortable, you might want to sign them up for a supplementary credit card. These cards allow you to add family and friends as additional cardholders. This means your child can have his or her own credit card. Keep in mind that most credit card issuers allow you to place a cap on the spending for these cards. This makes these cards a relatively safe way for your child to begin to learn to use a family credit card responsibly. Furthermore, you will earn rewards from their spending, and in most cases, avoid additional annual fees.
Key Takeaways for Parents
Like any other aspect of parenting, teaching your child to be financially responsible requires clear communication, patience and trust. Please also keep in mind that this list is not a set of mandatory steps that you must take. However, these tips will hopefully help you begin conversations with your children about how to manage their finances, setting them up for success in the future.