7 Tips to Set Your Kids on the Path to Riches—Part Two
7 Tips to Set Your Kids on the Path to RichesPart Two
In part one we talked about the first three tips to make your child a rich man. In this part, we will continue to discuss the other four tips:
4. Rewards
One way to teach children the value of money is to make them earn it. You might ask your child to do a chore, say helping clean the living room, and pay a small amount of money for it. The child might have an incentive to add that to his or her kitty.
"It helps them to get motivated," says L. Ravindran, a financial planner based in Bangalore.
You should ensure, however, that you reward only special tasks and not routine tasks like children keeping their dishes in the kitchen, or brushing their teeth.
5. Open a bank account
Consider opening a bank savings account for your child between the ages of seven and 11 years, says Mr. Ravindran. After that, deposit the child's pocket money in the account.
This is a great way to make children more financially independent, as they have to learn how to run the account. Through internet banking, they can keep track of their savings and expenditure from home.
More important, when money is in the bank, it's harder to spend, says Ujjwal Kumar, a 14-year-old student in Dehradun who lives in a hostel, away from home.
Mr. Kumar says there's a hesitation in going to the bank to withdraw money, especially for spurious things like buying game consoles or cell phone.
6. Debit VS credit
For older children who might be in college and live away from home, the living expenses can be quite high. But that doesn't mean that parents should give them a credit card with unlimited spending.
These children should ideally have a bank account of their own, with a debit card.
"The amount of money available there should be restricted to pocket money plus living expenses," says Mr. Dhawan, the Mumbai financial adviser.
However, in case parents want to allow their children to access a large amount of money in an emergency, Mr. Dhawan suggests giving an "add-on credit card."
This is basically part of the parent's credit card, and should ideally keep the child from overspending.
7. Investing lessons
Once your children have become old enough to grasp basic money concepts, say maybe after 15 years of age, you need to explain to them the power of compounding and investing.
One hundred rupees invested today will become 200 rupees in around seven years, if it earns a 10% compounded interest rate.
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