A big part of parenting is raising kids who know and clearly understand the rules of money as well as how money works in the real world. This enables them to be confident about managing their finances and building wealth, leading to a life of abundance, which results in living a life that is fulfilling, comfortable, and happy — one where they don’t have to worry about money. Isn’t that what we all want for our kids?
To ensure that kids learn how to manage money, I will be covering some important ideas that can be implemented and why they should be.
The Touch and Feel of Money
We currently live in an age where we ourselves, as adults, rarely literally ‘see’ the money that we earn and spend. The majority of it is just numbers on screens & apps. With payment options like credit cards, debit cards, net banking, e-wallets, etc. there’s hardly any real hard cash that we transact with these days.
However, we (gen X and Y for sure, as well as a large percentage of millennials) grew up dealing in physical cash. We grew up seeing our parents and grandparents pay in cash for goods and services and we ourselves grew up paying cash for everything — until a decade or two back when plastic money and online banking became popular and acceptable as safe modes of transactions.
Hence, while we resort to digital transactions, we understand the flow of money from where it comes from, how and who it goes toward and for what purpose. Today, you’re considered behind the curve if you aren’t comfortable with online transactions, payment apps, net banking, credit cards, debit cards, e-wallets and online bill payments, etc.
In fact, if you’re a financially tech-savvy person, chances are that your physical wallet will perpetually have low amounts of cash. Naturally, it is only at such times that someone will ask you for change or a petty amount to pay for the cab/a quick bite and you’ll open your wallet and show them how you really aren’t carrying any cash, thus making you look cheap and leaving you feeling embarrassed. This definitely holds true for me. I resist going to the ATM because it really is a pain.
The annoying keypad tone… puk, puk, puk, puk, then the jjshhhhhhhhhhhhhh sound of cash being counted. I’d honestly just rather swipe my card and keep moving. It’s not just that the physical visit to the ATM bothers me, but I simply find it much more convenient to use my debit/credit card for payments wherever possible. This also helps me keep track of my budget and expenses.
While I go around conveniently using net banking, Paytm, ATMs, etc, I know I have to pay the credit card bill from my bank account, which keeps my hard-earned money. If I swipe my debit card, the amount gets deducted from my bank account. If I take out money from the ATM, my account balance reduces. Of course, despite the ATM keeping 3 ACs running for itself, I save the environment by not taking the paper slip. We understand how all of this works.
Here’s what our kids see and understand about how money works
Because our children have never dealt in hard cash or seen us dealing frequently in cash, for them, perceiving ‘money’ as paper currency or something tangible is quite difficult.
For our children, money then literally becomes an abstract idea that is unlimited and never-ending, because here’s what they see as a chain of events in a few situations:
- You go to the supermarket. You buy a ton of groceries. You also buy biscuits, cookies and chocolate that your kid demanded. You then stand in a random line with a machine at the other end. When you reach the machine, you took out some plastic thingy from your wallet, swiped it, put in some numbers and the cashier smiled at you and gave you everything you had in your cart. As a small kid and an observer, all this seems amazingly easy and convenient. Daddy just takes out some card from his wallet, swipes it and we can walk out with anything we want. Your kids don’t see the credit card bill payment you make at the end of the month or the SMS alert you get stating your account balance after swiping the card. They feel this card is a magical, unlimited resource that allows you to take home whatever you want.
- You go to the ATM with your kid. You swipe your card to take out some cash. There’s no discussion on account balance or anything. You simply punch in the amount required, take it, leave and spend it on whatever it is that you intended to. Your kid does not see the SMS alert of reduction of balance on taking out the money nor are they aware of the fact that your heartbeat just got a bit faster while withdrawing because you’re already running a bit low that month. Magic again!
- You’re at the dinner table and your wife asked you to order groceries/ clothes/anything. You agree and fiddle around on your phone for 5-10 minutes after dinner. The evening of the next day, your kid sees whatever you ordered lying on the sofa in the living room. Awesome! Your kid thinks Dad can get anything he wants the very next day by doing something magical on his mobile phone.
The point is that your kid sees all this happening on a day to day basis, but does not see the role of money in the transaction. They do not see that there is an exchange of money taking place in return for goods and services. They do not know that this money exists in your bank account and that your bank account is linked to your debit/credit card, and that’s what you’re getting out from the ATM. They do not see the foundation on which net banking, cards, e-wallets & ATMs are built.
Since we’ve grown up dealing in cash, we understand that money is a medium of exchange, that it is finitely (the sum may be large or small but is always defined) available in a wallet/bank account at any given point in time and that this balance in your wallet/bank account reduces as you continue to spend money.
However, in today’s digital age, your kid perceives money as an abstract idea or infinite, readily available thing that resides in a smartphone or a plastic card in Mom/Dad’s wallet or in some big machine in a fancy air-conditioned room.
This illusion distorts their view and understanding of not only how money works in the real world, but also its value.
Hence to give your kids a more realistic understanding of how money works, you can try to follow these steps whenever possible
- Let them frequently experience holding a specified amount of cash in their hands to buy small-ticket items at a local convenience store. Let them experience having a 100 rupee note and buying fruits worth 50 rupees and getting 50 rupees back from the cashier
- Talk to them about how you make money, how you get limited money in return for the business you manage or the job that you do.
- Talk to them about how and where your money is kept — in a bank to keep it safe and how your bank account is connected to your debit/credit card so you can take cash from ATMs and can be connected to e-wallets.
- Talk to them on how credit cards work.
- Talk to them about how you allocate your spending towards things like groceries, petrol, entertainment. etc.
- When going to the supermarket, don’t buy them everything they demand. Instead, give them a certain amount of money and tell them that it is now for them to independently decide and figure out what all they want to buy for themselves with that amount. If you give them 200 rupees, let them decide if they want to buy a single fancy toy worth 200 or buy biscuits for 100, a toy worth 50 and a book worth 50. This will teach them that money is finite and it needs to be spent as per their priorities and requirements at that point in time.
- As your kids grow up, talk to them and teach them the concept of needs vs wants, the value of saving, investing, delayed gratification, etc… while these are complex ideas but you’ll be amazed at how early and how easily they grasp them.
Most importantly, let them hold cash in their own hands, transact with it in exchange for goods and see the money getting exhausted as they buy the things they want. This will easily make them understand how money works and how to purchase by prioritizing what’s important and what’s not.
The above steps will go a long way in making your kids aware of how money works in this digital but very real world.
That’s all for now. If you found this post helpful, share it with other parents as well!
Bhushan (Dad So Kool)