We are all aware that money does not grow on trees. Hence, personal finance should be explained to kids from a very young age. Most teenagers have no clue where money comes from and where it goes. Various aspects of personal finance such as income, expenses, mortgage, investments and retirement accounts are never discussed with teens. Many financial problems faced later in life can be avoided if they are provided with proper personal finance solutions from their early years. Remember, for children literacy begins at home. Here are a few key aspects that you as a parent should bear in mind.
Start saving early: While it is crucial to start earning early in order to be financially independent, it is equally important to start saving or investing early. The golden rule of any investing plan is to start early, simply because time is on your side. Teens must also be taught to start saving/investing early to reap the benefits of the power of compounding. It is not necessary that you need to be earning to start investing. As a teenager, any excess pocket money can be saved and invested in useful avenues.
Give a piggy bank/open a bank account: Financial independence can trigger a spending spree in your child. So, the start of pocket money should ideally be accompanied by a short talk on maintaining a good balance between spending and saving. Encourage the child to save before spending, a habit that can ensure financial security when he starts earning. Initiate by gifting a piggy bank or opening a bank account for your child. Guide him into depositing the money received as gifts from relatives in the account.
Set goals: Dreaming big and idealistic is the key to achieving goals. Keep a practical goal and work for it. Teenagers should be taught this aspect of personal finance right from the beginning. Teens understand this concept if they are made to save for something they want, rather than being funded immediately on asking- be it tech gadget or a holiday or a bike.
Teach to spend thoughtfully: When you encourage your kid to save money from an early age, you enable them to understand the value of living on their own by their own means. It is their choice whether to live alone or with another roommate, or use your old car or buy a new one. The main goal to keep in mind is spending less than earning. You must emphasize that every rupee that your kid spends unwisely is a loss to the investment potential.
Keep away from debt: When your kid will be starting out on his own the key point to keep in mind is to spend within limits. High expenses tend to hit hard in the beginning so most teens end up exhausting their credit card limits. When you do that, it will limit your options. Your child may be tied up to paying back and won’t be able to get ahead with anything.
A smart way to educate your children regarding personal finance is by using practical examples and instances which matter to them E.g. you can teach them about liabilities by discussing about education loans, as this is an integral part of higher studies. Practical hands-on approach and constant guidance are absolute musts while imparting personal finance knowledge to teenagers.