How to Teach Kids about Money and Financial Boundaries

Are you one of those parents struggling to keep up with the constant demands of kids that’s starting to rock your finances? If yes, then you’re not alone. Starting a conversation with your kids about money builds a solid financial literacy foundation.

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Monetary debt has become an inherent part of millennials and Gen z's lifestyle. Be it due to student loans, credit cards, or irresponsible financial behaviour - this generation is struggling to keep afloat amid the debt trap they are in.

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The 2020 State of Credit Report revealed that today a millennial has an average debt of $27,251 as non-mortgage loans. The scenery for a mortgage loan is not any better.

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However, the burning question is why this generation is in so much debt, and what about the upcoming generations, especially Gen Z and baby boomers? 

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Blaming the lack of investment options or financial responsibility doesn't hold ground. For the first part of the question, millennials irresponsibly continue to spend money they earned.

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Majority of younger generations today have little to zero knowledge on their spending patterns and ever-increasing debts. An unlimited access to credit cards, bank loans, and several other credit forms only makes managing finances complicated because it gives a free leeway to kids to spend lavishly. 

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We can go on ranting about the shortcomings of how kids perceive money and wealth in today’s time but as parents there’s one thing you can do to keep this under control - teach your kids the importance of how to manage their money and how to respect the financial boundaries set by you, as their caregiver. 

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How splurging and a fancy lifestyle can affect your kids?

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Before giving lessons on financial boundaries, it’s crucial to reflect on the financial behaviours you’re exposing your kids to on a daily basis. Afterall, kids learn from their parents! 

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As parents, we often ignore the red ringing bells while spending lavishly or making our kids used to an outrageously fancy lifestyle. So, whatever you do with your money will directly impact your child's psychology and upbringing. 

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Parents love to pamper their children and try to keep them away from life's stress. While it is not wrong, it’s important to set boundaries that can help a child keep in learning good financial discipline, and make them understand the importance of limitations. 

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Following are a few ways your financial habits can be a brainchild of your kid's mindless spending and increasing debt.

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1. Giving children too much financial allowance

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Out of many financial behaviours, giving kids too much allowance is the one that has the maximum and worst impact on kids. Instead of making them learn about it, you encourage them to spend the same. 

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Growing up, instead of saving money regularly, your kid might tend to spend everything and lead a lavish lifestyle. Over time, it may lead them to a debt trap. This is why you should imbibe the habit to save money from a young age.  

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2. Creating havoc in financial behaviour/decisions

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There are times when you can become confused about finances. It can be regarding investment options, managing debts, high expenses, worrying about the house mortgage, etc. While discussing finances and money with your kid is good, you must limit whatever you share. 

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That's because, as kids, it's difficult to comprehend the maturity level required to bear lots of financial responsibility. Instead of expressing your confusion and anxiety, which can make finances an overwhelming topic, make them understand that sometimes making a financial decision can be challenging. In those times, staying calm and making the right choice works best. 

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Teaching these basics can help kids become adults who are better at working out their finances correctly. 

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3. Not letting them earn anything

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As parents, you have the right to pamper your kids and fulfil all their wishes. But when you continue to do so for a prolonged time or do not set boundaries, their demands will know no limit.

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Regardless of your situation, they will always ask you for something. Sometimes, these demands can come in hundreds of thousands of rupees!

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To curb this rising scenario, it's essential that you cultivate the value of money from a young start and set the proper financial discipline. 

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Start rewarding them when they demonstrate good actions - these could be as simple as getting good grades in school or being a disciplined and responsible kid throughout the year. 

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Teaching these basics not only helps them get used to being a good individual from the start but also inculcates the mantra of how you’ve got to ‘work hard to earn money’ the right way. 

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5 ways to teach kids about financial discipline

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Being a parent is difficult. You cannot undo what you did as an adult, but you have enough time to teach your kid the importance of respecting and valuing financial freedom. 

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And if you're struggling to create a healthy line between good and bad financial behaviours in your kids, these 5 ways can help you take the step in the right direction - 

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1. Allow them to earn 

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One of the best financial learnings you can give them as a parent is the opportunity to earn. Until and unless they know how hard it is to make money, they will never understand what you go through to provide for them.

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They will continue disrespecting your efforts or anyone with a lower financial status. This can escalate to having a snobbish attitude, frequently engaging in lavish spending, and a piled-up credit card debt.

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So, instead of providing pocket money for free, make them be a part of your daily work around the house to earn the basics. For instance, you can teach your 8-year-old kid to do simple chores like folding the laundry or watering the plants and make ₹10 daily. 

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So, in a month, they will have ₹300. Similarly, you can reduce the allowance for young teens and adults and encourage them to get part-time jobs like taking tuition and start earning for themselves.

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2. Help them make smart financial decisions

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Whether you encourage savings or allow a costly purchase once every three months, you should help your kid make intelligent financial decisions. 

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For instance, your kid does not need a fancy branded dress for every birthday party. Even a decent dress from a regular brand or store serves the purpose. So, spend smart and teach your kids the same lesson.

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3. Teach them how money can grow with nurture

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Every parent should teach their kids about financial security. Money can exhaust itself if spent without any limit. Besides, money is a security that can help meet the emergency crisis, whether unemployment or medical emergencies. So, teach them the importance of investment and how it can help the money grow over time.

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Start with a simple piggy bank trick from a young age and help them accumulate all the money they receive over a year in this piggy bank. After a year, once they see the bountiful savings they've gathered, it'll instil the positive habit of saving bit by bit and make them understand the importance of daily saving in the future. 

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4. Give them lessons on four financial pillars

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Earnings, expenses, debts, and investments are the four pillars of your kid's financial future. They must know the importance of earnings, the differences between necessary and desirable expenses, and the need to invest. On top of everything, they should also understand how to manage/avoid debt and how it can ruin financial stability. 

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The teachings shouldn't be in terms of words and books only. They can understand the importance of financial discipline only when they face reality from an early age. Make them earn and deal with personal expenses to know how hard it is to earn money and so easy to spend.

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5. Set good examples of financial behaviour

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Last but not least, you should put up examples of good financial behaviour in front of your kid. For instance, teach them to stick to a budget and limit expenses. Also, introduce them to financial clarity and the need to remain calm when exposed to stressful situations. 

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Conclusion 

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Establishing financial discipline is very crucial, especially for millennial parents. Incorporate these teachings into your parenting and see how your kid's financial habits can change for the better.  

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If you're starting now, we'd suggest you take it slow - do not drastically cut down the money your child is habituated to; this can lead to frustration in your kid. But at the same time, do not give them too much money as that can create an adverse situation. 

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Establish a balance between their expenses and allowances and set them towards a debt-free lifestyle they'll be thankful for in the future.