Parents play a crucial role in the growth and development of their child. Children learn from their parents by simply observing them from a young age. Children are really inquisitive and ask tons of questions about everything.
Though your child is growing up fast, the world is moving faster. This is the time to understand that preparing your child for the future is not limited to education any longer. You need to prepare your child for a global world, and this means you need to go farther than education. As a smart parent, you need to teach wise money management skills to your children.
Children observe you deal with money matters in your home and learn from your actions. If you are a spendthrift, your children will consider it okay to spend money on unnecessary items. However, if you carefully plan your finances and build a budget, your children will learn to do the same. Every parent wants to ensure that their child is financially responsible, and this can be achieved through simple but consistent steps.
Here is how you can prepare your child for being financially independent and responsible.
1. Set an Example :
Young children watch you and learn. If they constantly see you use plastic money, they will notice that it is easy to swipe the card and when you argue with your partner about money, they will notice it too.
You need to set an example for them in order to ensure that they understand and follow the same as they grow up.
2. Practically Explain the Importance of Money :
Children need to understand that it is not easy to earn money. To do this, you need to physically hand them money and accompany them to a store, ask them to pick up a few items and make the payment for the same. This will work better than a ten-minute lecture on the importance of money.
3. Stay Away from Impulse Buys :
In order to set a healthy example, you need to stay away from making impulse buys. You need to restrain yourself from using money without thinking over it.
If your children ask you to buy them something every time you are at the store, you need to avoid it and encourage your children to wait for at least a day before making the purchase. Ask them to think over it and consider if they really want to spend the money on the purchase.
4. Build A Budget :
If your child is a teenager, it is the right time to introduce the importance of budget to them. Set a simple budget and ask your child to stick to it. This will help your teen understand financial discipline and to stick to a limited budget through the week or the month.
As your child grows, you can ask him or her to make their own budget within the specified amount and to follow the same.
5. Teach Children to Stay Away from Loans :
It seems extremely simple to apply for a loan and borrow money. But it does not come for free; there is a responsibility of making payments within the due time.
Before your teen starts college or applies for the first job, you need to explain to him/her that it is best to steer clear of the loans. Talk through alternatives and encourage the habit of saving. It is best to spend the money within your limits instead of getting under a pile of debt.
6. Enroll them For Financial Certification Exams :
There are various certification exams conducted by NSE, BSE, etc. Ask your child to enroll for the same. These examinations will help them learn about the investment domain. There are various modules to select, like mutual funds, derivatives, banking fundamentals, financial markets etc.
As you prepare your child for their bright future, you must also fulfill your responsibility towards securing their future. What this means is financial planning for their higher education and career. The best way to do so is investing in child education plan.
If you have got time on your side, you can put your funds in child education plans such as SIPs in equity-oriented funds. Equities are the best option available to create wealth in the long term. However, considering the volatility involved in directly investing in stocks, the SIP route of mutual fund investing provides a better option for parents who are looking to create a considerable corpus for their child’s future.
Moreover, your investment in child education plan is managed by professionals who have the expertise in cherry picking stocks. Thus, you have a highly diversified portfolio which can provide considerable returns over the long run (*mutual funds returns vary according to on-going market conditions).
Financial freedom is only valuable if it is accompanied by financial responsibility. Teaching children about finances at a young age will help them in getting future-ready.