Why imparting financial literacy to kids to develop money personality in them is important

As conscientious parents, we constantly try to mould our children’s personalities and instil in them the best habits – all of this in an attempt to set them up for a successful life later on. After all, the famous Greek philosopher Aristotle did rightly say, “Good habits formed at youth make all the difference.”

What are some of these character traits that we want our kids to embrace? Empathy, curiosity, sociability, resilience, self-awareness, integrity, resourcefulness, creativity… What about developing their money personality and helping them adopt money management habits?

A research by behavioural scientists David Whitebread and Sue Bingham from the University of Cambridge concluded that money habits – including the ability to plan ahead and to delay gratification – are typically formed as early as age seven. In fact, it is rather hard to reverse those habits later in life.

The key then is to begin early and learn thoroughly. But why is it important to develop your kid’s money personality at a young age?

A study by the University of Michigan found that children as young as five already had distinct emotional reactions to spending and saving money, and that these translated into actual, real-life spending behaviours. So, beginning as early as five or six years old can go a long way in helping shape your child into a fiscally prudent and financially independent adult. And in today’s technology-driven world, where most things and experiences in life have taken the online route – learning, playing, entertainment, shopping and more, introducing your kids to critical money concepts has become almost indispensable.

With easy access to products and services, kids are not only prone to spending more but are also vulnerable to online frauds. According to recent RBI data, Indians lost at least Rs 100 crore every day to bank fraud or scams over the past seven years! With the largest youth population in the world and nearly 40% of the population aged between 13-35 years, financial literacy in India is no longer a luxury, but has become a necessity.

Financial literacy or money management must not be restricted to giving kids their monthly allowance or “pocket money”, saving it in a piggy bank, to be used to buy the latest PlayStation or for birthday treats. While this exercise might be helpful to begin with, these early lessons in saving must be followed up with concrete lessons in financial management, investment and planning as kids grow up.

Needless to say, developing a robust money personality will not only allow your kid to manage their needs and finances in the present but also allow them to take charge of their future. Early financial education can greatly determine if your kid will grow into a spendthrift or a tightwad.

Moreover, amid the looming fear of recession, job cuts and economic losses, financial independence is one of the best gifts you can give your kid — the freedom to use your money when and where you actually need it — education, housing, retirement, healthcare, on that swanky vacation and more. I guess it won’t be too clichéd to say, it’s a gift that keeps on giving.

While it’s beyond any doubt that parents need to start teaching good money habits to children very early on in life, the fact remains that a majority of us don’t feel particularly comfortable talking to our kids about money.

What’s the solution then? It is perhaps best to let the experts and trained professionals take the lead on this. Much research and many experiments later, it has been found that using age-appropriate projects, games, activities and simulations around modern money topics such as FinTech, Cryptocurrency, DeFi, Metanomics, Investment Instruments such as Shares-Bonds, Index Funds, REITs are the most effective ways to educate kids about money management, saving, investments and more. When kids actually see their learning in action, and are involved in their learning in a more visceral way, the lessons tend to be more impactful.

In a country like India where less than 27 per cent of the adults and 24 per cent of women are financially literate, financial education is one of the biggest assets we can empower our kids and youth with.

Educate them about the importance of money, saving, power of investment, formal sources of credit, and protection against fraud and debt. And as parents, educators and responsible citizens, we can only hope that this creates a ripple effect throughout the country, where we grow and prosper as the fastest-growing economy in the world.

The author is an IIM Calcutta alumnus and Co-Founder, Education10x. Views expressed are personal.

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