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As a parent, the great duty of preparing your children for their life's journey falls on you. Financial literacy is an important component of this journey. By establishing sound financial practices in your children, you can put them on the road to financial security.
This article will discuss how you can help your kids develop financial responsibility so they become financially aware adults.
7-Step Guide to Raising Financially Responsible Kids
#1: The Allowance Approach
The simple idea of an allowance is often the first step on our path to raising financially responsible children. Giving kids a set amount of money on a weekly or monthly basis not only gets them excited but also piques their curiosity about money.
You can teach children the fundamentals of personal finance by giving them an allowance. They start to assess prices based on what they can afford with their allowance as they start to understand the value of money. They inevitably pick up the fundamentals of budgeting as they work to stretch their allowance over a predetermined amount of time. To further improve this learning process, encourage them to save for big purchases.
You can also use allowances as incentives for good behaviour, academic achievements, or finishing household tasks. This approach not only encourages children to participate in chores in the house, but also nurtures a sense of work ethic in them.
#2: Real-Life Lessons
It is crucial that you incorporate tangible financial literacy into your daily lives so that your kids can understand these ideas. Here are some doable methods to do that:
Teach older kids how to budget and find the best deals by involving them in meal planning and grocery shopping.
Give younger children a budget for snacks and let them select the weekly goodies.
Children should be encouraged to save money and make contributions towards big purchases like video games or toys.
As an enjoyable way to practise budgeting, give popular stores or fast-food restaurants gift cards.
Allow your child to choose clothes and school supplies and give them a budget to work within to make back-to-school shopping an educational experience.
#3: Learning with Fun
Financial literacy should be entertaining and engaging! And what better way to do it than games? Introduce play money and cash register sets to younger children. They can learn important math skills by pretending to count money and make change.
As kids get older, learning about finance can be entertaining when they play board games like Pay Day or Monopoly. The Allowance Game is a terrific choice for younger children, and the Stock Exchange Game can be thrilling for teenagers. During family game night, bring up the financial and economic concepts that these games cover.
Apart from these, to further improve the learning process, try out some apps and online games like Financial Football.
#4: Part-Time Jobs for Independence
Getting your kid involved in a part-time job can be a great way to teach them independence and Financially Responsible Kids. Having a part-time job will teach them important life lessons and skills that go beyond managing finances. It fosters in your child a strong sense of responsibility, time management and work ethic.
Additionally, it gives them the chance to get a taste of the real working world and learn the importance of making their own money. They may become more appreciative of money and its significance in their lives as a result of feeling financially independent.
It goes without saying that having experience working part-time will help you when applying for full-time jobs, internships and colleges.
#5: Save, Spend and Give
In addition to knowing the worth of money, financial responsibility includes giving back and having a positive impact. The "save, spend, and give" rule can assist in raising kids who are not only financially astute but also compassionate and appreciative.
Urge your child to set aside 30% of their income for particular purposes, like big purchases, vacations, or their college fund.
Tell your child to set aside half of their income for a variety of goals and obligations, such as a portion of household rent or utilities.
Instruct them to make a difference by giving 20% of their income, either to a charitable cause or to buy necessities for a nearby homeless shelter.
#6: Opening a Bank Account
Opening an account for your child is a great way to introduce them to banking tools. They will gain knowledge of the fundamentals of banking, including how to check their balance and avoid going overboard.
As your child gets older, you can expose them to additional products and tools:
They can learn about investing with Certificate of Deposits (CDs), which are low-risk investments with a fixed rate of return.
With the aid of automated transfers, your child can save 30% of their income with a savings account.
If you want to help your teen establish credit, think about getting them a credit card.
Remember that investing is now easily accessible to all as well, thanks to investment apps featuring fractional shares and user-friendly interfaces.
#7: Investment Plans for a Secure Future
Another crucial component of raising financially empowered children is investing for their future. You can build a financial safety net for your child's future needs with the aid of various investment plans. These plans offer a methodical and goal-oriented way to save for your child's future marriage, higher education, or other important life events.
What is a Mutual Fund Child Plan?
One investment option that can assist you in building a financial safety net for your child's future needs is a mutual fund child plan. These child investment plans make investments in bonds, stocks, and hybrid funds, among other mutual fund assets.
These plans are designed to offer a goal-oriented and disciplined way to invest for your child's future marriage, higher education, or other significant life events.
Notably, two primary categories of mutual fund child plans exist: Child Plans and Unit Linked Insurance Plans (ULIP).
Top Child Investment Plans for 2023
For individuals, several insurance companies offer mutual fund plans. The following table enumerates some of the Top Child Investment Plans that will be accessible in 2023 for a person meeting the following requirements:
Your Entry Age: 30 years
Investment Amount: Rs. 10,000 per month
Premium Payment Term: 10 years
Policy Term: 20 years
Investment Plans | Entry Age | Maturity Age | Policy Term (PT) | Minimum Annual Premium |
TATA AIA Fortune Pro-WOP | 18–60 years | 65 years | 15–40 years | Rs. 12,000 |
Bajaj Allianz Smart Wealth Goal-Child Wealth | 18–55 years | 33–85 years | 15–30 years | Rs. 48,000 |
Max Life Online Savings Plan- Child Plan | 18–54 years | 64 years | 5–30 years | Rs. 12,000 |
Edelweiss Tokio Wealth Secure Plus- Child | 0–50 years | 18–70 years | 5–25 years | Rs. 24,000 |
(You can refer to the reference article for the complete table)
Mutual Funds vs. Mutual Fund Child Plans
Both mutual funds and mutual fund child plans are choices for investment plans for your kids, but they have different functions and characteristics:
Particulars | Mutual Fund Child Plans | Mutual Funds |
Purpose | These plans are specifically designed to help parents save and invest for their child's future needs | They aim to generate returns for investors based on the performance of the underlying investments |
Investment Objective | These plans have a dual objective: capital appreciation and ensuring that the investment matures around the time the child needs funds | The primary objective of mutual funds is to generate capital appreciation or income for the investors over the long term, depending on the fund's investment strategy |
Lock-in Period | Many child plans have a lock-in period to ensure that the investment grows steadily to meet the child's future needs | Mutual funds do not have a lock-in period (except ELSS funds) |
Insurance Component | Child plans include an insurance component, ensuring that the child's future needs are taken care of even if something happens to the investor | Mutual funds focus solely on investment and do not provide any life insurance coverage |
In Conclusion...
Financial responsibility education for kids is a worthy and important goal. It gives them the fundamental knowledge and abilities they need to make lifelong, prudent financial decisions. Every action we take affects their financial future, whether it's giving them an allowance, involving them in actual financial decisions, or investing for the future.
Teaching kids about money and providing them with Financial Planning for Education equips them with the knowledge and skills necessary to manage their finances effectively. By teaching them the value of savings, children can learn to set aside money for future needs or goals, and allowance management can serve as a practical tool for learning budgeting and responsibility.
Youth financial literacy is a fundamental component of this process, enabling children to make informed financial decisions. Child budgeting tips and money lessons for children can be instrumental in helping them understand the importance of budgeting and distinguishing between needs and wants.
By imparting these valuable lessons and encouraging responsible money management, we empower children with lifelong skills that will benefit them throughout their lives. Teaching children to save and manage their money responsibly is an investment in their financial future and overall well-being, ensuring they are better prepared to navigate the complexities of personal finance as they grow into adulthood. Remember, it's never too early to begin teaching your child these important lessons! More Sources to Read: