Remember kids follow the adults in every aspect of life.
More especially, they need the guidance of understanding the values, earning, spending, saving, managing money and giving or donating

Each one of the subjects can best be resolved by adults adopting a pattern of their own best practices.

These exercises are not new to the adults, but there is a lag to go forward and make plans with the kids. Adults tend to keep kids out of money talk. While it is not wise to discuss subtle details of your finances with young kids, introducing financial literacy at an early age is crucial. This would develop healthy financial habits to lead a successful life.

We are discussing different aspects here relevant to elementary / middle / high school kids. Depending upon the maturity level of the child as far as financial literacy is concerned. it would be beneficial to review the information under each heading.

goal no.1Needs and Wants

Introduce children early on to the concept of Need vs Want. Putting this in simple words
Needs = essentials that we need for our survival
Wants = things that we cherish to have

After you see that the child understands the basic idea, tabulate two columns titled as Needs and Wants. It is a good idea to do this exercise side by side with the kids to get them started. Think and do this exercise as a child would do and include realistic items in the list on your sheet of paper. Don’t be surprised if you find all the items on your child’s Needs column is filled with Wants.

Now discuss with the child as to why you put in the most essential items such as food, water, shelter, clothing, basic transportation, electricity, heat, medicines etc under the Needs column. You can show the Wants column are non-essential items like smart phones, video games, movies, electronics used for fun, jewelry, expensive clothing, trendy shoes, etc.

Discuss why each item went under either of the two different categories on your sheet. Don’t overwhelm the child with a huge list. Give the child an opportunity to think and choose more items into the list. Your goal is to make the child understand the difference between Needs and Wants. Get the child to review the list and ask if she wants to make any changes. Trust me, kids are money smarter than we think they are.

goal no.2 Spending

Well we all need no education to indulge in spending. But, your goal is to teach the child how to spend with discipline and not engage in impulsive spending. Once the child understands our first topic of Needs VS Wants, it’s easy to inculcate the habit of disciplined spending.

Take them to shop with you and show them how to shop smartly. Kids may ask for brand name items due to peer pressure. Show them how the same kind of item can be bought for a fraction of a cost when they don’t come with flashy labels or brand name.

Show them how the same things are priced differently in different venues. You can show this more easily by visiting the online shopping venues of the stores. Open up a couple of tabs and show and help compare how the same clothing or markers are priced differently in two different stores. While driving, you can draw their attention to the price of gas in different facilities (sometimes right next to one another or across each other). These exercises will mold them to shop smartly.

If you are undertaking a project in your house such as a small time renovation or installation, give your kids a notebook and guide them to record the expenses on a day to day basis until the completion of the project. Help them to read the store invoices and how to classify the

While going on a holiday or trip, give them a small notebook and ask them to document all the expenses. You can even make them categorize them under different headings.

goal no.3 Concepts Of Debt

Some parents feel it’s important to shield their kids from the harsh realities of the world. But by doing so, you are not shielding them from something bad, but closing their eyes to thecrude reality of the world.

Debt is an inseparable part of the financial journey. It is important to introduce kids to theconcept of debt early on in life. The best way to do this is to show them how credit cardworks. Give them simple definitions of some basic terminologies associated with debt such as – credit, interest, term, penalty etc.

When they are asking for something expensive, it may not be a bad idea to give them a loan for the purchase at a cost. This will help them understand the cost of money and also create a discipline in managing their debt in a sensible way. Get them to document the amount borrowed, term, interest (you are charging), repayment of principal with interest. This exercise may be more suitable for older kids than elementary school children. But, introduce the concept early on.

goal no.4 Saving

Of all the topics in view, saving is the most important aspect and ranks high in the order. Hence, teach them to allocate a sizeable part of their allowance/ earnings into savings. Savings can start off with a piggy bank at home as early as they are 4 or 5 years of age.

Giving the child small allowance for chores or a reward for a good grade/ behavior/ winning some contest will give the child access to real money for saving. Make the child write an account of what he/ she is saving in a calendar or by creating a ledger folio. This will introduce the child to simple accounting. Once the child has collected a sizeable amount, take her to the bank and open a Minor Savings Account, with parental control. The child can still continue to save the money in the piggy bank and every month, on a set date, you can take the child with her savings for depositing the money in her Minor Savings account. You can show the child how her savings are growing.

For younger kids, introduce them to the concept of saving for a goal like –holiday/ birthday gifts for family. For older kids, you can introduce them to the idea of saving towards college. You cannot expect a child to pay for all their education expense, but introducing them to the concept of saving towards a worthy goal will build a sense of achievement in them.

goal no.5 Investing Skills

Introduce children to the concept of how you can buy portion of a company. You can show them how a big company’s capital is divided into small portions called stocks just as a pizza is divided into slices. Make them understand, that just the way we would choose the best pie and ask for a slice of it, you need to chose the best company and buy their stocks. We are not suggesting that you teach the child to do the analysis of the company’s financial statements, but this would help them get introduced to the concept of investing in the right way. Quite often, we see some people trading stocks just by chasing ticker symbols. If we try and introduce the idea of healthy investing right at the onset, this will help while they grow. For older kids, its may be a good idea to get them create a small mock portfolio of stocks and monitor and record the movements over a period of time. They must be taught to study the company, industry and the economy while they are doing this exercise. Teach them to read the financial pages and encourage them to watch financial news.


These are some basic ways to introduce financial literacy in your kids. Once you make this a routine, this would become a part of the child’s daily life and make them money-smart to face the world with mature confidence!

The writer, Leelaa Rao, CFA, is a Senior professional portfolio manager and has been practicing for over 18 years in New York, Florida, Georgia and Illinois apart from international financial market experience in the UK and Switzerland. The views represented by the writer are basic introductory briefs on financial management.

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