Indian parents are known to be over-protective about their children and also play influencing roles when it comes to crucial life decisions such as career choices. However, not many parents prefer to discuss money matters or financial literacy with their kids. If we take any average Indian household with teenagers, we may most likely come across financial literacy being limited to pocket money.
While lending pocket money, parents keep a close watch on where it is spent, how it is spent, etc. However, what is often lacking is open conversations with kids on money matters, due to the fear that the child may reveal the family’s finances or may be young for the subject.
It is high time that this perception changes among parents. Children, especially teenagers, are fast learners, digitally equipped and many are also financially savvy. While they are eager to learn, parents must instil certain financial values that will guide them in their future money matters.
Here, we will share the top 5 money matters that parents must discuss with their teenagers.
- Basics of budgeting
Parents must take time to explain the basics of budgeting to their teens by making it a part of dinner conversations. To begin with, parents can casually gain their teen’s interest in the topic of budgeting, after which, they can use examples to demonstrate how expenses must always be lower than income to enjoy a financially sustainable life.
One of the ways that parents can explain this concept is by listing out common expenses such as monthly rent, light bills, groceries, etc and also including some of the teen’s common demands.
Read more: Importance of budgeting in financial planning
Another practical way to explain the concept is to set a savings target for the teen by self-managing his/her income and expenses. To make it interesting, for instance, parents can ask their teens to set goals and achieve them using their monthly allowance within a timeframe. This can allow him/her to learn basic budgeting skills. In the process, the teen can begin appreciating the need to save and how to control demands to stay within a budget.
- Banking basics
Banks play a crucial role in an individual’s financial journey. Whether it is opening and maintaining a simple savings bank account or any other bank deposit that can earn a regular income, we all depend on the banking system for various financial reasons.
Therefore, parents must explain to their teens the basic functionality of a bank by allowing them to perform simple tasks such as cheque deposits, operating bank lockers, internet banking transfers, etc under supervision.
Explaining to them about terminologies such as debt, loan, interest rate, etc. can help in furthering their financial knowledge and boosting their financial confidence in the long run.
- Importance of savings & benefit of compounding
We all know the importance of savings and how they can ensure financial security in the long run. However, in today’s age, with rapid spending due to higher disposable income, savings may not be prioritised by many.
Therefore, parents must teach their teens how to acquire a savings habit by sharing a few of their life examples. This will aid them in achieving their financial goals with ease.
Another factor that aids savings is compounding. For example, by putting some of the child’s money in basic instruments, like a savings account and bank fixed deposit, the parent can help him/her differentiate between cash savings and savings in the form of investments. This will allow the teen to understand how money can grow or compound over time if put into the right avenues.
Read more: How can compound interest in mutual funds make you rich?
- How crucial are earnings
Every parent must explain and demonstrate the outcome of hard work and how it can be directly correlated to one’s earnings. No matter the level of skill, teenagers must be exposed to some amount of work that can fetch basic income. Linking income to chores or responsibilities can be one way of showing them the outcome of hard work.
For example, if he/she wants an expensive item such as a gadget, link the cost of the gadget to an errand. This can be something like working for the family business for a certain number of days or even teaching his/her sibling regularly.
- The positives and negatives of debt
Parents can begin exposing their teens to debt management by allowing them to buy something like a gadget or an accessory using a loan. By setting certain payment terms, such as the timeline for repayment and interest rate, parents can provide practical learning about debt to their kids. They can charge default or late fees in case of missed repayments. This exercise can help teens understand the benefits of borrowing while also teaching them how debt should be avoided when not needed or how defaulting on debt can give rise to penalties.
Conclusion
Parents can ensure that their teens are prepared for a stable and well-balanced financial future by exposing them to certain financial lessons on budgeting, savings and borrowing. By allowing them to handle their finances from early on in life, parents can prepare their teens for one of the most important life lessons, that is, money management.
FAQs
Parents can begin guiding their children about the usage of credit/debit cards at an early age and under supervision. Since credit cards are not allowed below 18 years, parents can provide exposure to their kids by explaining the benefits, warning about the financial impact and closely monitoring the usage of cards.
Many parents provide practical financial exposure to their teens by allowing them to handle family finances to a certain extent. If monitored closely and with the right amount of hand-holding, this can help teenagers learn money management early on in life and be better prepared for the future.
By setting aside some portion of their teen’s monthly pocket money towards an emergency corpus, parents can guide teens on how the same corpus can be used in emergencies. A simple example of an emergency for teens could be when they miss their school bus and have to reach school using a cab, they can use money from the emergency corpus.
Parents can limit the funds that teens have access to while guiding them on the financial consequences of impulse purchases. Also, for positive reinforcement, parents can guide their teens about the benefits of spending on avenues that are well thought through.
