Practical money skills for big kids (over 8 years)

As children grow, their understanding of money continues to develop. Their preferences and ability to process messages also becomes more sophisticated and in this phase, parents can teach additional skills to children.

Get children involved in shopping decisions

When you are buying things, get children involved deeply in comparing products and prices and make them a party to the decision. For example, Should we buy this item which claims to be such and such for Rs. 100 or should we buy this one which is larger but has fewer claims and is also only Rs. 90? Such shopping decisions are complex and it helps children not only learn about money but how to apply their analytical skills.

Then there are other types of decision making which are more qualititative and experimental. For example, you may choose to experiment with two different soaps over a month, and help your child make a decision on a subsequent purchase on whether the benefits of the soaps were proportional to their prices. This is a more qualitative decision where children can quickly learn the difference between advertising claims and reality.

Explain the need for savings - emergencies, long term plans

Children at this age will be able to absorb lessons about savings better. Explain to them about why it is important to put away money for an emergency like hospitalization or a long term plan like education or retirement or for buying a home.

Give allowances or budgets

Children of this age will be easily able to comprehend tradeoffs. Start giving allowances or setting budgets for certain things. For example, you can set a monthly allowance for eating out, entertainment, trips, fun purchases etc.,. Make the child responsible for keeping track of their budget by recording every expense of theirs and keeping track of what remains. You may want to handle the money yourself if your kids are young. This teaches them responsible decision making. Occasionally, they will make a mistake where they run out of their allowance. Do not lend them money from the next month's allowance. They need to learn the lesson about keeping money around for a rainy day and a loan will teach them that there is an easy way out.

Associating allowances and chores

It may make sense to associate chores and duties with allowances. But the entire allowance should not be based on duties and chores, as the allowance should cover basic needs. Anything above that can be associated with chores and duties. But be prepared to hear your child occasionally make the choice to forego that incremental amount and not do some chore. This is a choice they may make and you should be prepared to respect it. If they are willing to live with it, so should you.

Allowances and behaviour

While it sounds logical, it may not be wise to use allowances or money as incentives for everyday good behaviour or threats against bad behaviour.  Choices are made easily at this age by children, and they make think a small cut in their allowance is worth indulging in bad behaviour for. This may also be a way for them to assert their independence and decision making. Irrespective of allowances, this rebelling will happen. Any discussion on bad behaviour may quickly become a huge scene as soon as money enters the arena. Parents would be better off focusing only on the behaviour, and using allowances only as a weapon only in the most difficult situations.

Discuss brands

At this age, an added level of complexity gets added to the basic need vs. want equation. Brands start playing a big role in the decision, mostly driven by advertising. The same discussion that parents had with children about needs vs wants should be had about brands also. The message should be about how a brand's claims should be verified and checked rather than implicitly trusted. But additionally, teach them about confidence and the positives and negatives of peer influence. This is the time to help them make a decision rather than force a decision on them. Let children make the tradeoffs on brands vs budget. Give them a specific budget and tell them to make a list of items they need and let them make the decision of which items need to be big brands (more expensive) and which can be from lesser brands (less expensive). This also teaches them specific tradeoffs.

Encourage savings by paying interest

You can help your child save money by helping them open a bank account or paying them an interest yourself based on money that they "deposit" with you, from their allowance.  To encourage savings, you may want to do it yourself and provide them a higher interest than a bank would. Let them keep track of their deposits and their balance with you, and as you go along, teach them the power of compounding (ie., how interest earns interest)

Continue practicing charity

When setting an allowance, you can state that a certain amount must on average be given to charity. Allow kids some flexibility on a month-to-month basis, and check the average only every quarter. You can also offer a matching amount on what they contribute to charity. For example, for every rupee they give, offer to add a rupee from yourself so that the charity gets twice as much.