Promote financial literacy in your children with our free guidebook for parents. From budgeting to investing, this resource provides all the necessary tools and information to help your children thrive in their financial future.
The Context
The more you learn, the more you earn – Frank Clark
Humans are unique among other species as 90% of human brain development occurs outside the womb. This typically happens under the supervision of adults in the first three to five years of life. Therefore, it should come as no surprise that the initial optimal time for human development is from infancy to preschool (0–5 years), after which it goes on until the age of 25.
This especially relates to the prefrontal cortex, or PFC, development, which is not finished until close to the age of 25. In layman’s terms, PFC affects attention, impulse control, prospective memory, and cognitive flexibility through modulating cognitive control.
Simply put, you would potentially be pushing the limits of a brain that is still immature if you enroll your 6-year-old child in those flowery coding classes or pompous money-making financial literacy programs. Even though dealing with money is a daily aspect of adult life, it is not a subject that is included in the school curriculum either.
We have hence decided to put up a simple and completely free handbook for all parents to support their little ones in swiftly adapting to the grown-up world. These precepts of financial literacy are vital from the very start to help instill the importance of spending, sharing, saving, and success.
A Child’s Perspective
Kids typically find it confusing as they start to figure out what is being traded for snacks in marts, shops, and delivery apps. They desperately try to interpret what they see from their innocent perspectives. Many children usually tend to associate money with love and affection, which carries some kind of healing properties in this world – but is that accurate?
Scan-Beep & Done
If you haven’t thought about it yet, it’s quite tricky to properly teach kids about money in the current environment. Times have changed and most kids don’t witness adults engaging in the traditional exchange of actual money, as we did in earlier decades.
All they can see is plastics being tapped on merchant terminals or QR codes being scanned in exchange for items – It’s pure magic! Talking to your kids about money and equipping them with financial literacy at a tender age is now much more significant than ever and here’s a fun way to do so.
Step 1: Age 3-5 Years
At this age, your child will start to notice the characteristics of items and will start to categorize and describe them. By this age, the majority of young toddlers start to apply problem-solving abilities during tasks like designing and building a block tower or making clay cookies.
The time is right to start teaching the fundamentals of financial literacy and assist them in deconstructing the complexities of both physical and digital currency. At this age, explain to your children that money is a commodity that may be traded for goods.
Explain to them the differences between little monetary denominations as long as they are aware that coins are not to be placed in mouths (be careful with that). It is the ideal time to also pique their interest in playing business simulation games using fictitious money. Let them consistently win in the game and watch the magic happen with a smile.
Step 2: Age 5-9 Years
As children at this age have the opportunity to learn new mental concepts and skills at school, their brain development accelerates. They learn to think independently as they mature and develop in this age group, which increases their curiosity and interest in exploring the world around them.
At this age, you may help your child develop the foundations of financial literacy. Kids should start receiving allowances between the ages of 5 and 9 in exchange for good behavior and doing small household chores like stacking toys, clothes, or books. It would also be beneficial to discuss bank accounts (money jars or piggy banks) and what it means for a bank to generate interest at this time (money earning more money).
Step 3: Age 9-13 Years
Your youngster shows signs of increasing independence from the family at this age. Your child’s development during this time will be focused on how they interact with language, literacy, and the arts. They will go from only seeing things in concrete terms (only the facts) to being able to view things from an abstract perspective (having multiple meanings). From a financial standpoint, it is the ideal time to start a new game. Take them to a bank in person and assist them in opening a small savings account (as a dependent).
Start giving them moderate allowances and tell them to put that money down for a specific objective. This objective could be a toy, a board game, a stationery item, or a DIY kit.
Step 4: Age 13-15 Years
Your teen’s written and spoken language grows increasingly advanced at this age. They might also start to understand philosophical, social, political, and moral ideas. Although a bit defiant, teenagers typically know the proper thing to do at this age. As good parents, you should increase their allowance to cover more costly items like their clothes and presents for others. By giving children simple domestic chores and assisting them in making their own money, you might also introduce entrepreneurship at this age.
This helps constructively funnel their energies and enables them to decompress. Entrepreneurship is a crucial component of financial literacy for teens to understand the importance of making thoughtful financial decisions in life.
Inculcate a habit of saving that earned money in a bank account to yield some interest. Their precise demands for pricey items like gadgets or subscriptions may also be employed to teach delayed gratification. This strongly improves their ability to effectively manage and invest money later in life.
Step 5: Age 15-18 Years
Most teenagers start to learn how to think abstractly, handle multiple concepts at once, and anticipate the effects of their decisions by the time they are a little over 15 years old. Adulthood sees the continuation of this logically sequential way of thinking.
Opening a real account with a debit card would be an excellent idea right now. Show them the physical and mobile banking (e-finance) methods for managing that account. By educating kids about the notions of internet scams and banking fraud, you must also teach them how to protect their hard-earned money.
Step 6: 18-21+ Years
At this crucial age, your juniors start to choose their battles in the outside world. No matter how much you adore them, make sure you add a level of responsibility by taking out a student loan for their university at this age. Even though the idea is still relatively uncommon in India, getting an education loan under your child’s name (where you be the guarantor) is strongly advised.
It releases the parents from needless stress and removes the need to sell off long-term investments – especially across equities (stock market, etc.). Besides, nobody will offer you a loan for your retirement, although your children have plenty of time to pay off their debt.
Additionally, section 80E of the Indian Income Tax Act of 1961 allows for a tax deduction for interest paid on student loans.
In India, the interest rate on student loans ranges from 8% to 14%.
This way, you get time to create a long-term payment plan because EMIs are only paid after the end of their education tenure. Even if you have your child’s educational costs planned out, it is advisable to let them contribute towards part contributions on a college loan at first. You can sequentially increase their contributions when they receive annual job raises.
This allows them to establish their credit history and teaches them the value of the money they make in their first few years of job. It might also be wise to gift them some stocks and assist them in setting up a Demat account during their first employment.
Conclusion
Would you agree if we say, the ability to manage money is an attitude, not a subject? Every chartered accountant and banker would have been a potential millionaire if this had been the other way around.
Children’s perceptions of money as a master or slave in their lives are allegedly influenced by the way it is taught to them. As your children get older, you as a parent must teach them the fundamentals of financial literacy.
We hope that this Free Guide will give you the tools you need to help shape the financial destiny of your children right from the start. We are devoted to supporting you in achieving financial success. To help you improve your financial literacy and accomplish your financial objectives, you’ll find a wealth of useful information, interactive courses, and other resources right here.
