A few years back, I took my entire M. Sc class to lunch. Don't remember why. They probably coerced me into it! As someone who never eats outside, I was clueless about pricing and was trying to get a rough estimate as they wanted to go to a high-end place (relative to the campus cafeteria!). One of the students said, "Why worry sir! Just use your credit card. Swipe karo!" The student was no kid. He was about 22!
Is that how credit cards work?! You swipe and forget about it!? I ask because I don't own one. Perhaps we should ask those who use credit cards for emergencies.
I think the need to get kids interested in money management cannot be overemphasised. Interested, not teach. You start teaching and they run away.
Here are a few thoughts on this subject. I am a father of a 4.5 year old. So let me not pretend to know much about parenting children above that age. That said, I am fairly convinced that the following would work.
1) Let them touch and feel money at an early age. Let them see it change hands. Let us try not to use credit or debit cards in their presence because they should feel a sense of loss when a purchase is made.
2) Sooner or later they are going to want something or the other. Be it a fancy tablet, mobile, i-pod, whatever, if we can't afford it, let us say a firm 'no'.
If we can afford it, let us ask our kids to research on similar products available for at least a week. They would need to first make a short-list, compare features, watch product reviews on youtube, check out the manuals, discuss it with us and then decide. Obviously this applies to big ticket purchases only. One need not research over a bar of chocolate (although it won't hurt to do so!).
It has to be their call, but an informed one. The benefits of insisting on this early in their lives will show up when they are ready to plan for taxes and make their first investments.
If we succeed in this regard, we can declare ourselves victorious for all practical purposes.
They will teach themselves the importance of not making impulsive buys, of research for product features, of reading fine print etc.
If it is a big-ticket or affordable purchase, we can ask them to wait a few months while we save for it. Start an RD or invest in a liquid fund etc. If the kid is interested, we can ask him/her to use a goal planner and figure out the amount needed. They will need to worry about interest rates. They can search for this as well. We can push as much as they are willing to take it.
Even in this day and age of online spending and investing, this little guy has a special place in instilling discipline.
3) I am not a big fan of paying kids money for doing chores or even giving them pocket money.
Participating in household chores is mandatory for all family members and one cannot put a price tag to it.
As regards pocket money, I don't think it helps in anyway. I think it is a bad idea to give kids some , 'do whatever you want money'.
4) Budgetting should be a family activity. It was until a couple of years back in my family. When my kid grows up a bit, I should restart that. Kids should see (hopefully observe; they usually do) how the monthly income is segregated into different compartments (expenses, investments and liabilities). Hopefully, they might ask a nice question like, "why do you invest?". Perhaps we should also throw in some light jargon like, investing, saving, wants, needs etc to get them curious.
5) What about investing? There is no flaming hurry to teach about equity, stocks, PPF etc. I think it is enough if the parents discuss investments in their presence.
6) The importance of giving is more important than spending or investing. We will need to regularly engage them and ourselves in charity events, donate to organisations, volunteer if possible.
7) Transparency is key. Even if we make small purchases, my wife and I always tell each other about it. Not permission, just information. I think our children should also encouraged to do the same – to us until they start earning and to themselves and their spouses later on.
We have been teaching our child the need for money and how transactions works. He now understands that money is transacted in a shop in exchange for goods. He surprised us with his definition of a customer: “someone who has money”.
Here is a couple of videos that 15-year-olds might follow with a little bit of hand-holding (assuming one can get them to sit down and watch them for 43 and 30 minutes respectively)
William Ackman: Everything You Need to Know About Finance and Investing in Under an Hour
How The Economic Machine Works by Ray Dalio