Teaching Good Money Habits: The Role Of Financial Parenting In Childhood Development

Parents are the lens through which a child sees the world. From daily habits to emotional perceptions and attitudes, parents become models for developing essential life skills and values from the early stages. And in today’s world, being street smart, especially when it comes to finances, is critical to ensuring that a child is able to face every challenge in life head-on. In other words, the safety and security that you want your child to have come from financial parenting.

“The age of five marks the beginning of rapid growth in a child. The experience and learnings of this period will have a significant impact on the quality of life they will lead. Thus, contrary to common beliefs that underestimate a child’s learning capacity, financial parenting centered around introducing the basics of money becomes paramount around this time. Having a working knowledge of money, knowing the importance of saving, and understanding the difference between needs and wants will assist your child in defining appropriate financial goals at the right time,” says Palka Arora Chopra, Senior Vice President, mastertrust.

It is also critical to note that even when you are not directly educating children, they are actively observing every act of yours to make sense of concepts like spending, saving, borrowing, and even crediting. For instance, if you are stringent while spending, the child can learn the basics of budgeting, though they might not be sure of the reason until told. “On the other hand, if you are a spendthrift who uses credit cards excessively on luxury, the child might develop an easy attitude towards money. However, several other factors also play an important role in shaping emotions, values, and attitudes towards money,” adds Chopra.

Instant gratification of needs can be highly unhealthy, and cause severe stress for your child in later life. Thus, one of the vital goals of financial parenting is to inculcate self-control in children and help them become aware of the value of money. Chopra shares some ways to develop healthy money habits in your child:

1. Teaching a child the meaning of incomeGive your child pocket money on a weekly or monthly basis. Fixing the amount will help them understand that money is not infinite, and is highly valuable. Understanding the limitations of money will facilitate independent decision-making while spending.
2. Teaching a child to saveNow that your child understands that money is finite, they must be able to understand the importance of saving even better. Thus, giving them a piggy bank to save an amount from their pocket money. This is also a good time to introduce the concept of saving money to fulfill long-term goals.
3. Teaching a child to spendKnowing the difference between necessities and luxuries, needs and wants, is critical to guiding spending behavior. This does not mean spending miserly, but having a grasp of your spending capacity and choosing the right things to invest money in. After all, life is not about surviving or being extremely extravagant, but about finding a balance.
4. Remember, a child learns from observationRemember, a child learns from you, so if you conceal information thinking it’s too early, the child might develop some unhealthy money habits that will be difficult to unlearn. So make sure to slowly include your child when you go shopping and let them see the cost. Likewise, tell them why you chose a certain item over another. Encourage them to use their pocket money for anything they like based on what they learned from you.
5. Have realistic expectationsMoreover, be mindful of age. Be careful not to underestimate or overestimate your child’s abilities as both can have a negative impact on their self-esteem. As the child matures, progress from simple concepts to more challenging ones. Don’t over-control your child; instead, allow them to make their own choices and learn from their mistakes. Such an understanding will foster confidence and self-esteem in them instead of fear of finances and guilt.

Financial parenting is critical for a child’s overall development. As a parent who wants the best for their children, you must play a vital role in shaping their values around money.

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