I have a 10 year old kid & its time for him to learn about money. The subject of money is not taught in school & so its left up to us as parents. I have though of a three step process which I will share with you here to solicit your views & opinions.
Step 1. I have started him with a very small pocket money. This is an important step, he is now custodian to responsibility. We as parents are trusting him with little money & as he learns to handle little money he will them be able to handle more money.
One important reason I am allowing him to handle his own cash is that he has to feel the power & excitement that “cash in hand” offers!
One more reason, If I can get him to feel he is responsible for his money he will stop depending on us for his small financial requirements. Which in turn will make him self dependent for his financial needs as an adult & he will learn not to depend on a paycheck.
This is my opinion that every earning adult come up to this stage.
Step 2. Once he is comfortable with the cash he is now managing, I have to teach him the value of keeping records. So we will have a small book where he can note down his income and expense, his balance sheet.
There is an important lesson I wish to teach him. Accounting is where normal people fail, they receive and spend a lot of money in their lifetime & still end up broke or tight at savings. Its not their ability to earn money, rather its their inability to learn, correct or leverage their income & expenditure patterns. It is good accounting practice that really give you these insights. Accounting is your financial history from where you can learn to build your future.
Its my opinion that people through excellent & disciplined accounting practices reach the state of self-employment, like consultants, doctors, small business owners & small investors.
Step 3. The power to dream, focus & the determination to accomplish his dream. I know that the wealthiest people never worked for money.
My Answer : As a mother of a 10 yr. old its been a fascinating journey trying to teach him to manage money (his allowance) with never a dull moment there. (tears and emotional black-mailing all included)
However I have decided to be at it consistently cause that`s a skill which would benefit him for the rest of his life if he learns it properly.
He gets his allowance in small denominations and I encourage him to keep aside a bit of it as savings even if it is a miniscule amount right at the begining of the month.
Any major item of purchase (like the i-pod he wanted) requires him to earn some predetermined ` good points` and that object becomes his goal.A good performance at school,sports,helping out his younger sister,keeping his room and wardrobe clean and organised earns him those points .
Earlier I was strict about not giving him any more money if he finished his allowance mid-month.But now I have introduced a new concept to him.The concept of paying a little interest on borrowings from the next month but only if that purchase qualifies to be important enough after mutual discussions.
I guess the managing of accounts would take somtime to come ; may be another 2-3 yrs to go but its going to be amazing if he can learn to balance his accounts.
I do get occasional pangs of guilt when I see those puppy eyes and feel like giving in at times but in view of the larger picture I feel I am on the right track.
Good luck to all the parents on Linkedin !
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