With festivities of Diwali, many of us like to pamper ourselves. Buy new clothes, shoes, home appliances, the latest gadgets…have it all and go on a shopping spree!

Yes, while it's all done to spread joy and smiles to our family members, are you sending the right message to your little ones, your children?

You see, children can be sometimes demanding on materialistic things. And mind you, such behaviour is getting inscribed into them easily due to competition, which they easily get swayed by.

But if you as parents try to inculcate the right values on to children when it comes to managing their money, you can brighten up their future this Diwali. As you may be aware, children learn from their surroundings. Therefore as parents you got to be conscious in your approach while managing money, especially when you are out shopping with them. They are constantly watching you. So, don't give them a wrong impression of you having plentiful, and even if you do, teach them to be money-wise.

Common sense dictates that the younger they are when they start to learn, the more they will absorb and respect what you teach them. Kids today are growing up faster than you would believe. They develop wants, needs and financial lifestyles at a very young age.

By the age of 6, your friend's daughter will be asking for a cell phone and will want fun events at her birthday party to be better than events at her classmate's party. At the age of 8, your neighbour's son understands your computer better than you did at 16, and he wants a cell-phone and a play station too. While children may have financial needs, wants and demands, this is in fact the best age to help them understand money.

Moreover with the uncertainties surrounding the global economic and financial scenario at present, it is extremely important that today's younger generation is taught about money matters right from childhood so that they will be better prepared to face any crisis situation that may arise in the future. You as parents might feel that your kids tend to become casual about money matters and behave as if money grows on trees. However, if you take efforts to create financial awareness among your children from an early age, they will value money more and make lesser mistakes when they grow up.

PersonalFN has listed down certain ways for teaching your child about money matters.
 

• Start early: Children must be taught about money from an early age. For instance, you can give your little one a piggy bank to save some money. This will instil the idea of saving right from childhood. For little older kids, you can start a monthly/weekly allowance, which will help them learn how to handle money. It is also wise to hand in notes of different denominations (Rs 100, Rs 50, Rs 10) while giving them their pocket money. This will further encourage them to save. Also, easy to understand and light hearted discussions about the value of money and how it is earned are a good way to begin with.
   
• Rewards and expenses: Set some monetary rewards for doing some basic chores (such as paying electricity and telephone bills etc.) in the house. This will help them to relate money with work. Also, encourage them to pay certain personal bills from their monthly allowance. For example, most teenagers use mobile phones. You must give them a budget for the usage and let them pay for their own expenses. This indirectly will limit their unnecessary expenses and create a sense of spending money sensibly.
   
• Shopping with your child: It is a good idea to take your little boy / girl out when you shop for grocery or other items required in our daily lives. Children learn from what they see. Hence, if you are heading for Diwali shopping to a mall, departmental store or supermarket, plan your spending wisely and don't overindulge. The next step is to let the child observe the way you compare the quality, price, warranty etc. before buying a particular product or service. This will help them understand how you indulge in need based spending and avoid impulsive purchases. As a parent, it is also important for you to not buy unnecessary and extravagant gifts for your children to meet their demands. This sets an impression that they only have to demand every time they want something. It is more prudent to explain them the difference between 'needs', 'wants' and 'wishes', which will help them to make prudent financial decisions in their future as well.
   
• Banking transactions: Exhibit to your children, the concept of earning interest on savings. For example, pay them little interest (rewarding them) on the money they have saved out of their monthly allowances. Teach them to calculate the interest they have earned. This will enable them to understand the power of compounding. For grown up kids, who have already understood this concept through knowledge imparted in schools or colleges, lead them into opening a bank account for saving money. This will help them save money systematically and also keep a track on their expenses. Use every day live examples to explain concepts to your kids. For example, if you are out for usual dinner at a restaurant or a special Diwali dinner, explain your child how the tax is calculated on the bill amount and how a credit card works in bill payments. Allow them to go through your personal bank statements and credit card bills. This shall educate them about the effect debt can have on your outflow of money and will also make them aware about the family's financial standing.
   
• Setting goals: Make your children write down their short term goals (such as buying video games, clothes, shoes etc.) and long term goals (such as purchasing a bike or saving for college education). This will help your child prioritize and realize his / her goals. Create awareness among them about the impact of inflation and help them calculate the approximate future value of these objectives. Encourage them to start saving for each of these goals separately. You see, this will inculcate in them the habit of saving for their future and make them more responsible. In a way, you will be shaping their vision and creating an understanding for the need of a financial plan.
   
• Let your child make mistakes: For some time, it is wise to let your children make mistakes while handling their share of money and take their own financial decisions without any interruption. This is because a lesson learnt from one's own mistakes is never forgotten. For example, if your child spends too much on superfluous expenses, he will find himself incapable of purchasing something from which he could have fulfilled his short term goal (such as buying headphones or new clothing). This will force him to think before spending money impulsively in the future. Having said that, you must also keep a track of his spending habits by asking casual questions or tracking his / her bank statements or asking for an account of the money spent by him / her. It will not be prudent to let your child make the same mistakes repeatedly.
   
• Involve them in your financial decisions: You should involve your children while taking financial decisions for the family, especially the ones that will affect them. For example, when you are planning a family holiday, then how to budget and save for the same, or when you are creating a financial plan for investing your hard earned money for your child's higher education or for your retirement. You see, children learn a great deal by observing. Discussions like these will create curiosity in their mind about money and drive them to think about investing it.
   

You can consider imparting all this knowledge through various games and books which teach kids how to handle money and related concepts in a simple and fun manner. While several board games (such as Monopoly, The Game of Life, etc.) demonstrate the importance of saving and money skills; books teach kids vital facts about money and investing through several illustrations and pictures.

As parents, you must also keep in mind that you are your child's biggest role models. They learn from what they see. If you have big debts, loans and unclear financial plans, your children are bound to perceive that as normal and make the same mistakes as you did. Hence it is imperative that they see you saving and working towards your financial goals in a systematic manner. In other words, you must practice what you preach to your children.

You see, the ill-use of money can be detrimental to people of any generation. Educating and motivating your children to use money efficiently will make them financially independent in the long run and make them money-wise throughout their life.

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Comments
udarerr@uniphos.com Oct 29, 2014 very precise and correct article. a must for all parents who want their child to understand the value of money!!!

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