A STEP BY STEP GUIDE TO IMPARTING FINANCIAL EDUCATION TO BHATIA YOUTH

 

The arrival of a child in the family is the most wonderful and joyous moment in any parent’s life. Along with immense joy comes additional responsibility, the responsibility of bringing up the child and developing multiple facts of his / her life. ‘And while parents may be doing a fine job with the upbringing, making the child financial savvy or rather “money wise” forms an important part of modern day parenting.

 

Just as for any multi storey building it is important to have strong foundation; similarly it is important for your kid to gain knowledge about finance and investment right from his/her childhood days. This will only make the kid financially mature & informed at the right time, at each stage of his / her life. Right from automobile to electronics, real estate to FMCG companies, all are targeting this segment as children play an important role in influencing the purchase behaviour of their parents. Just as it is important to inculcate good values and virtues, it is equally important to focus on financial literacy for your kids. Making them understand about money matters and finance can help them build a strong investment base right from an early stage of their life, allowing them to reap benefits later.

 

Different kids at different age groups need to be trained in different way. Let us try to understand how money or finance related matters can be explained to kids across different age groups.

 

 

Kids between 3 – 5 Years

Make them understand about basics of money. The very first thing they need to understand is, what is money and importance of money. Why money is needed to buy everything.

 

 

Kids between 6 – 10 Years

Kids by this age, start going to school and start interacting with the outside world. They get more involved with their friends at school. There are few very important lessons to be taught at this stage. This entails making kids understand the difference between “needs and wants”, importance of savings, basic negotiation skills, etc.

 

 

Here you can prepare a chart and put all essential items like food and grocery purchase, milk, house rent, electricity, clothes, fuel, school fees, etc. in the essential item bucket called the ‘Need’ section of the chart while other items like eating out, going to the movies, buying toys, etc. should ideally feature in the non-essential item circle called ‘Want’.

 

Create 3 jars or boxes :

One for income, second for expenses and the last one for savings. You should encourage your child to move money from the Income Jar to Expenses jar whenever he / she may want to spend on necessary needs and transfer the balance to the Savings jar!

 

Ask your kid to deposit the tokens he/she receives on birthday celebrations, festivals like Holi and Diwali or through gifts in Income jar. After spending on his/her books, stationary or any other miscellaneous items inculcate a habit of transferring the balance to Savings jar. This will enable your child to understand that we need to spend within certain defined limits of income and the positive balance should be left in Income jar, in order to save.

 

Nowadays, it is extremely important to make your child understand the usage of ATM card. Also, how important it is to keep the card and PIN number safe and secure. Make them understand that the ATM card is only one mode of withdrawing your own money from your bank account. The ATM machine does not dispense free money, as a young curious mind may assume! The best way to teach your child the basics of banking is by opening a savings account for them. Today, most of the banks offer a “Junior account” for the child, which is usually linked with the parent’s account. The child can also be given an ATM card with a certain withdrawal limit and the usage should be restricted only in case of any emergency. This is quite useful in cases where both parents are working professionals and the children are by themselves all day.

 

Pre-teens: 11 – 14 Year olds

After making your kid financially aware about basic things related to money and  the concept of saving, now is the time to take things a level higher. At this age you can start discussing money concepts which may be slightly complex in nature for them.

 

You can easily begin with the concept of compounding and the importance of an early start to the habit of investing money in life to take maximum advantage of compounding.

 

Inflation:

Just as knowledge of compounding is important, knowledge of inflation is unavoidable. How inflation eats into the value of money and how it affects both investments as well as our day to day life. Make your child understand why it is important for any investment to beat inflation to grow your money.

 

Usage of Credit Card:

Kids at this age are completely exposed to the internet. They are consuming more information than a person at your age. This is where you expose them to the concepts of credit card, online payments and internet banking. A credit card is only meant to make transactions conveniently. Make your child understand the difference between credit and cash in hand. Also, the pros and cons of using a credit card and that it is dangerous to splurge through the credit card on something which you cannot pay in cash later. One may fall in a debt trap if he/she spends beyond their capacity to pay.

It is important to make the child aware about high penalty and interest rates charged by credit card companies on late payments and how one’s credit score gets negatively affected.

 

Also discuss the dangers of providing personal data online and that it is wise to not share any confidential information such as passwords by responding to spam e-mails in the name of lottery, free holiday offers.

 

Teenagers between 15 – 17 Years

This is the time when kids start preparing for their higher studies. Once your child has expressed his desire to pursue a certain interest in education, you must involve them deeply in making a rational and informed decision about their interest. The idea is to calculate the total cost involved towards the course across different institutes, which should include not only the college fee, but also study material cost, tuition fees, hostel & living expense (if any) and also commutation cost (in case if the college is in a different city). Your child can in this way, calculate the entire cost of the course across various colleges independently and also compare and make an informed decision on their own. In certain cases and if necessary, especially if the scenario is to pursue education in a foreign country, it helps to discuss about the concept of educational loans and pros and cons of taking such a loan.

 

 

 

Adults (18+)

These are grown up kids either still studying or about to pursue a career professionally  in a few years’ time. There are two very important lessons to be imparted at this stage:

• Importance of Insurance
• Importance of Taxes

 

Explain the concept of different kinds of insurance such as life insurance (term plan), health insurance, motor vehicle insurance etc. The best way to make your child understand the concept is to book a term plan and medical insurance in their name and involve them at every stage, right from comparing different plans to premium payment to understanding the policy document. It makes sense to pass on the responsibility of paying the premium on your child, if they have already started earning.

 

It is absolutely essential for a young adult to understand the concept of filing income tax return, the importance of filing returns and the impact of taxes on investment return. This will prepare your child to become a responsible citizen of the country and they will understand the value they can add towards building the nation.

 

Educating your kid on financial matters is an on-going process. While our education system does not focus on this practical aspect of finance education at primary or higher education level, the onus is on parents to educate their kids about financial matters so that they bloom into this commercial world in a way where they can sustain themselves well and succeed with the right know how!

 

(The above step by step guide has been laid down by financial expert Mr. Manish P Dutia and written by NiravBhimani, with the aim to empower Bhatia youth with the right financial know how.)