As we know as lovely toys children love, a much more precious gift idea for your kids is to start making them more financially responsible.
Given the increasing demands on our money and growing complexity about how best to use and invest it, financial experts suggest teaching children about the importance of money from an early age.
“Just like you want to expose your child to music, dance…you need to expose your kid to money so that he doesn't feel uncomfortable going forward,” says Vishal Dhawan, a certified financial planner in Mumbai.
Your goal should be to make your children competent in managing their money when they grow up so they avoid big financial mistakes.
According to experts, you can start by teaching your children about the value of money and savings even when they are young as five years old. The sooner they become financially savvy and wise investors, the better their chances of becoming millionaires by the time they retire.
I’d like to share you some basic tips to achieve it. Here are the first three tips,
1. Do what you say
Before you teach your children anything, make sure you follow this principle. You can't ask your children to save and not demand very expensive toys, and then buy a very expensive mobile phone for yourself.
“One should lead by example,” says L. Ravindran, a financial planner based in Bangalore. Remember, children learn a lot more from what they observe, rather than what they are lectured about.
2. Pocket money
The easiest way to make children careful about money is to let them have their own. Once they realize that they don't have an endless supply of money through Dad Bank, you might be surprised at how prudent they are at spending it.
Start giving your child pocket money but set some ground rules. You pay for big ticket items, say, clothes and one toy in Christmas Day, but a young child has to pay for small wishes like ice cream and stickers.
Typically, the pocket money should increase as the child gets older, so you can modify these rules accordingly.
Parents need to decide for themselves what's the right age to start giving children pocket money but it could be as early as five.
The amount depends on your earning capacity and the child's age. A 10-year-old child of an upper-middle class family living in a big city in India could get as much as 500 rupees a month, say experts.
3. Saving
Ironically, children learn the importance of saving as a byproduct of their intention to spend.
Let them know that if they want that big teddy bear which costs 1,000 rupees, they're going to have to save from their pocket money. If their target is too large, you might want to offer to pay half, so that it feels achievable to the child.
They learn that by keeping small amounts aside for a long time, they can buy big things. More importantly, you might be surprised to see that they don't want to buy as many things as they would if they were not spending their own money!
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