Money and Investing are some of the most important parts of one’s life but are also one of the least spoken about topics on the globe. Financial Education or Financial Literacy almost unheard of in India. As a result, only 1.5% of the Indian population Invests in Mutual Funds with only 20 million unique mutual fund investors according to Cafemutual, The USA for comparison has 55% of its population invested in the stock market according to Statista . In a country with a population of over 1.34 billion, the need for financial education is imminent.
Maybe you weren’t taught about money or even talking about money seemed like an odd topic to your parents and people around you. But you want be different and teach your children about money. It begs the question, when and where do you start?
We are going to be dealing with the when part of the question here. The problem is that if you teach them too early, they are just going to forget about it and if you teach them too late, it will already be too late and they might have bad spending habits or even worse, a bad credit score.
So, we came with a 5 Step Plan to teach your Children about Money and Investing: –
History of Money (10-12)
Starting out by teaching you children young is the key to success because if you start out at any point later, they might not be interested in what you have to say. If they are already interested before that or ask questions before the age of 10, Answer them truthfully and teach them a lesson or two.
Start out by teaching them the history of money from the Barter system to Plastic Money. This will try and develop interest in them about money and potentially investing as they grow up which is the ultimate goal in all of this.
Budgeting is an important aspect of a person’s financial life because it tells you where your money is going. Knowing where your money is going is important as you can then adjust how much you spend and where you spend it in order to get the most out of your money.
Teenage is the correct time to teach a child about budgeting as they will usually start getting some pocket money from you. This will build a good financial habit for them and also help them in tracking their expenses and not spend money unnecessarily.
Up until the age of 15 children had been living off of the pocket money paid by you, but this time around they are going to earn their own money and it is important to save. Why? Because the pocket money you gave them was meant to be spent not saved.
The income the earn now can be used for anything, hence it becomes important to teach them about various saving techniques and how much they should be saving according to their income. This will build a habit for them to instinctively save first and then spend if they can afford it.
This will also include teaching them about the importance of an emergency fund as it is an important aspect of being financially responsible, even America the largest economy in the world has problems as 40% of Americans can’t cover an emergency cost of $400 according to CNN.
Teaching children about debt is almost as important as teaching them about Investing and sometimes even more. Why? Because they will learn about investing eventually and start even if they are in their late 30’s. The same cannot be said for debt, debt is something that can make or break a person’s financials, as they control almost everything from dictating how much interest rate you are going to pay on your next loan to what rewards you will be eligible for.
Teach them about credit scores and credit rating agencies, also tell them about credit cards can be beneficial and can be used to your advantage if used wisely. But also have them keep their spending habits in check and use their credit wisely.
Investing is something most people wish they taught about in school or by their parents or even their relatives because it is an important part of a person’s road to financial freedom. Investing can get someone the ability to go do something while their money increases in value. Investing is commonly used as a retirement instrument in the form of a 401K in the USA and EPF in India. Both have their advantages and disadvantages but it becomes important to contribute to them.
Teaching your child about investing becomes important because of compound interest as the later you start investing, the lower amount you have for retirement. You could use courses available for investing as well as several books to assist you as it becomes important to cover everything in at least some detail.