03-Nov-2018 written by : FSI-Team
Parent's influence plays a very important role in inculcating good financial habits among children. Children tend to emulate their parents when it comes to spending and saving money. Hence it is necessary for parents to understand what good financial habits they must follow so as to secure the financial future of their child.
It is important to talk to your child regarding financial management. Explain how you manage your household finances and how you take decisions regarding spending, saving and investing your money. You can inculcate good financial management habits by giving your child pocket money and allowing him to manage it. The child will understand the benefits of budgeting and saving. He will not indulge in overspending and these habits will become a part of his being as he grows up.
The best financial habit that any parent can inculcate in a child is budgeting. Explain to the child how one keeps track of the inflows and outflows of funds. Show the importance of setting aside funds for important expenses like bill payments and debt instalment payments. When you show the child that one must diligently repay the debt obligations in a timely manner, he will adopt the same behaviour and learn to manage funds in an orderly manner.
Children are very observant and consider their parents their role model. That is why parents must exhibit positive financial habits. Involve the child in household shopping and use this situation to discuss planning, spending and saving money. Show the child that one must stick to the budget and not give into random demands of expensive toys, gadgets and clothes if it doesn't fit into one's budget. This will bring financial stability in the child's life when he grows up.
Concept of saving is the foundation of strong financial future. Open a savings account for your child and encourage him to save some amount from his pocket money every month. Show how systematic saving is necessary to achieve some financial goals like education, wedding etc. Show him how small amounts accumulated over a period of time help in creating reserves that can be used in case of emergencies. An emergency situation will never become a financial burden, if one has funds in reserves. When the child grows up he will take responsibility of planning in a systematic manner and saving money to achieve future financial goals.
When the child starts going to college, give him an add-on credit card so that he learns how to use it responsibly. Tell him about the limit that he can use in a month and the importance of sticking to the limit and paying bills on time. Tell him about the concept of CIBIL score and the need to ensure that one has a good credit history. Even if the child makes some mistakes initially, do not give up. Let him learn by experience how paying credit card bill on time is important for maintaining a healthy financial life.
Show the child that it is ok to borrow money to fulfil immediate financial needs in case the savings fall short. But the important thing is to make sure that one is sure of one's repaying capacity before taking on this responsibility. Borrow only after you have budgeted for the monthly repayments that will follow. For example if you take an education loan for the child's education, tell him about the importance of paying the instalments in a timely manner.
Follow the above financial habits and secure your child's financial future.