It is important to familiarise children with various concepts of finance from a young age. This will help them take informed financial decisions when they start earning. However, often parents find it difficult to impart basic financial education to their children. As advisors to their parents, it is your responsibility to sensitise children to various financial concepts.
Financial education to children must be an ongoing process. IFAs can help their clients inculcate savings habit among children. Read on to find how you can explain the basic financial concepts to your client’s kids.
The simplest way to explain this concept is to tell the kids that saving is not spending money immediately and using it later for things that are more important. One trick that helps children understand the concept of saving is asking them what they want. For example, if the child wants a toy, ask him the price of the toy. Then encourage them to start saving for the toy.
Also, encourage your clients to give their children a piggy bank where they can save money to buy toys and other treats to help inculcate savings habit.
You need to explain to children that earning is the money they can get in return for a service. You can explain to them this concept by giving them chores and paying them small sums of money. Encourage them to save their earnings and show them how it grows over time.
You can assign various role-plays to children like manager, employee and teacher to make them understand about earnings and jobs. When they complete tasks, you can give them fake money as salary.
Children usually are quick to understand spending. However, advisors need to coach children to spend wisely. It is important that they understand that once money is spent, it is gone. The best way to help children understand the concept of cautious spending is by sending them to buy small items. Also, encourage your clients to talk to their children about cheaper and more cost effective alternatives to the items they wish to buy.
Advisors should explain to children how to spend wisely and what they can purchase with the money in hand. The best way to introduce this concept is by encouraging clients to involve children in the budgeting process at home. It could be budgeting for a trip or picnic, to start with.
Advisors can give the kids a list of items needed by a family with prices and ask them to create a budget for the money they have managed to save. This will give children an opportunity to differentiate between necessary and unnecessary expenses.
Advisors must encourage their clients to start a savings account for the child and take them to the bank. This will help children understand how a bank works.
Advisors while interacting with children can ask them how they would like the money they saved to grow on its own. Then the advisor can go on to explain how if one invests money in an asset, they can sell it for more money.
Apart from these tips, advisors should also encourage their clients to talk to their children about money.