Strategies To Teach Your Children Financial Independence

 

Discussing Money

 

There may be situations where parents are facing a financial crunch but have to pay for the child’s education and other necessities. Unaware of the situation, the child might ask for an expensive gift, which would burden the parents further. To avoid this, you can always include your child in financial conversations and discuss money matters with them from a young age. Experts believe, this practice can help them value money and understand financial stresses better^[1].

 

Practicing Contentment

 

Financial independence has a lot to do with being content with what you can afford. To introduce the idea of financial independence to your child, teaching them contentment^[2] might be helpful. If your child wants an expensive gadget, instead of fulfilling his/her wish, you can ask them to make a budget and buy it out of their pocket money. This makes them trace how much they need to save each month for it, and whether it would be affordable for them to settle for a cheaper one. This helps them grow out of unnecessary demands and makes them stay within the budget when they grow up.

 

Understanding of Wants vs. Needs

 

Inculcating the idea of financial independence for kids, could start with teaching them  the difference between wants and needs^[3]. Let them know that basic food and clothes, shelter, education, and healthcare are the primary needs of life, whereas fancy clothes, meals, gadgets, and expensive cars are wants. Once they realize that they can do without watching that first-day first-show movie and save the money for a much-needed educational course instead, it could gradually change their habit of unnecessary spending and attain a financially stable life later.

 

Helping Them Make a Budget

 

Another stepping stone to financial independence for children is through helping them prepare a budget^[2]. You can ask them to trace how much money they need every month by calculating their spendings. Afterwards, let them figure out how to manage their expenses through a budget. You can reward them,^[3] with a matching amount or promise to cover a future shortfall if they manage to make regular monthly savings.

 

Letting Them Earn

 

Make your child earn money to fulfil their own needs. Let them taste the financial independence and the happiness of buying things with their own income. You can let them earn monetary rewards^[3] for helping you, a relative, or a neighbour with household or outside chores, with which they can themselves buy what they want. If your child is studying in 10th or 12th standard, encouraging them to opt for internships^[1] at offices, eateries, shopping malls, or boutiques may be helpful too. This way, they may not just learn to value money, but can also start valuing hard work too.

 

Encouraging them to Invest

 

If you have a teenager at home, you can always encourage them to invest^[2] for funding their own education or even buying a property in future. Discuss the benefits of starting investment at an early age, help them choose risk-free investment options and give them the taste of growing money through the power of compounding. This may not just be an exercise of financial independence for children but it also makes them an informed investor when they grow up. You can also sit with them while reviewing your own investment and financial statements, to give them a clarity of market, the investment opportunities, the potential risks involved, and how to deal with it.  

 

Letting Them Make Mistakes

 

Even if you introduce financial independence to your kids, it doesn’t necessarily mean that they would be perfect in their practices. As a parent, do not always bail them out or cover all the costs incurred. Rather, it may be helpful for them to make mistakes^[3] in their financial decisions and learn lessons from them. So, let them learn from their errors to understand what not to do when they grow up to avoid unwanted financial trouble.

But remember, introducing the concept of financial independence to your child doesn’t end with teaching them. You need to set a good example^[3] to help them understand the idea better. So, manage your finances well, save for emergencies, get rid of unnecessary spending, and make an informed choice while investing money. Let your child idolize you! 

 

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