How parents can set an example in financial preparedness and prudence for their kids

Anup Bansal, Chief Investment Officer, Scripbox, gives tips on how parents can lead by example in encouraging positive financial habits.

How parents can set an example in financial preparedness and prudence for their kids

Sunday October 24, 2021,

4 min Read

Children are fundamentally social learners. A large part of their values, knowledge, attitude, and behaviour is built by observing and participating in exercises with parents, teachers and peers. Amongst other skills, a great opportunity for parents to use behavioural approach as a tool is to reinforce good money management skills.


To do so, parents themselves need to initiate and sustain behavioural patterns that will encourage positive financial habits in children.


Here are some ways parents can lead by example…

Inculcate a savings habit

Using a savings jar or a piggy bank is a great way to get children started on their savings journey. Encourage them to put aside a little bit every time they have extra cash.


Kids who are very young may not understand the value of money, but over a period of time, seeing the number of coins or notes increase will have them excited. This lets them know that money does grow when you keep it safe.

Teach them the value of money

Draw up a firm allowance plan for your children and let them know this is all the money they will get, and it is up to them to manage it. If they want more, they would have to earn it via chores or taking up part-time gigs.


Personal finance is all about smart decision-making and at times, delayed gratification. Slowly, but surely, they will learn to make better decisions, as long as you don’t cave in to their demands.

Include children in financial decision-making

Having financial discussions behind closed doors robs children from the experience of having a voice and being heard. It is important to include them in the decision-making process, especially with respect to financial goals that concern them.


It could be figuring out how to manage costs of extra-curricular activities, their higher education or even a family vacation.


Giving them ownership of their goals can instil good habits based on understanding the value of money and hard work, as well as appreciate the efforts parents put in to provide for children.

Develop their budgeting skills

The ability to plan and see through a budget will hold children in good stead as adults. Show them how you save and plan for basic household expenses such as groceries and utilities. Help them identify recurring discretionary expenses from their end, and draw up a budget after considering their income from allowances and chores.


This is also a good time to get them started on their investment journey by having some portion of their savings allocated towards a ‘grow’ jar.

Help children understand banking basics

The ability to handle their own banking and financial operations will help children build both: their money management and interpersonal skills. Let them accompany you to the bank periodically and see how banking transactions take place.


Across different visits, help them learn about deposits and withdrawals using both cash and cheques, how various requisition forms are filled, what the displayed term deposit and forex rates mean, how to transact over an ATM, how to write a cheque, etc.


Gradually let them handle their own basic banking transactions and shift savings from a piggy bank to a real account. Teach them safe practices of using debit cards and online banking platforms. Encourage them to make deposits and withdrawals from their account, which will further help them see the effects of their saving and spending habits.

Introduce them to investments

Encourage teenagers and young adults to put their savings, stipend or incentives in investment products that compound rather than spending it on ‘wants’.


Recurring deposits or mutual fund SIPs have a very low investment threshold and can serve as a good starting point to the world of investments.


Before investing in direct stocks, they can test waters by creating a notional portfolio through certain apps. Help children understand how to make smart investment choices, assess risk-reward parameters, appreciate the value of compounding and more. You can even incentivise by matching the amount invested by your children, which can turn into a substantial corpus by the time they become adults.

In closing

Instilling good financial habits is a process that evolves as children grow and learn. It is important that you practice what you preach, and preach with consistency. With strong, consistent communication and positive reinforcement regarding money, you will raise children who are bound to handle their finances responsibly.


Edited by Anju Narayanan

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)