Written By: Harsh Jain, Co-founder and COO, Groww
Education and financial independence have been the key drivers of women empowerment and our country has taken massive strides in this direction over the years. With nationwide campaigns and education at the grass-root level, more and more families are educating their daughters and helping them lead an economically independent life. While it is important to educate your daughter to be professionally successful it is also important to ensure that she establishes a healthy relationship with money at an early age that enables her to make financial decisions on her own. So this International Women’s Day, here are 4 important financial lessons you can teach your daughter that will help her for life.
Inculcate the habit of saving
Your earliest memories with money probably involved a piggy bank where you deposited small pennies that were often given to you as a reward for good behavior or as a treat from relatives. Do you remember the joy of breaking your piggy bank after years of depositing money in it then finally finding a small accumulated treasure? That’s exactly the lesson you should teach your daughter too. Inculcate a healthy habit of saving. For instance, if she wants a particular toy, don’t buy her the toy immediately. You can teach her how to work for it and save for it.
You can give her a monetary reward for small chores that she does independently like arranging her room or watering the plants etc and then ask her to deposit it in a safe place for some time. She can then wait for the required amount to accumulate enough to buy herself the toy she wants. This works well for two reasons- first, your child learns patience and the fact that money needs to be worked for. Second- it will give her immense satisfaction that she was able to buy something for herself all by her endeavors, this will instill confidence in her. Now, this doesn’t mean that you deprive your child of the niceties and make her work for small things, but occasionally this exercise can go a long way in making her independent.
Teach your daughter how to budget
If your daughter is a pre-teen or a teen chances are she will ask you for some pocket money. Give her a monthly allowance and tell her to keep a tab of her cash inflows and outflows. She can record her transactions in an excel sheet or use freely available smart budgeting tools. The challenge is to save atleast 20% of the allowance and saving it. She might not get success in the first go but if she looks at her budget sheet every month, she would be able to weed out unnecessary expenses and increase her savings substantially. This is a very vital money management lesson and teaches her how to exercise control over her finances.
Introduce her to the concept of investing
Saving is just one part of managing money, the other part is putting it in the right avenues. This is where you can teach her the importance of investing. Teach her about the time value of money and how money, if not invested, can diminish due to inflation. If she is 18 she can start a SIP in mutual funds and if not, you can start a fund for her which she can manage. Starting a SIP even of a small sum can teach her how regular deposits and the power of compounding leads to wealth accumulation over time. Today, there are many platforms available that have tremendously simplified the process of investing and hence can be explored by novice investors. Expose her to such platforms and allow her to get a taste of investing. To supplement her experience, get her books of famous investors and encourage her to look for educational resources online. This exposure early on will help her immensely in charting her financial trajectory when she grows up, making her a confident investor.
Teach her how to handle her taxes efficiently
Taxes are not taught in school but will be a constant part of your daughter’s financial planning. Needless to say, it makes sense to teach her the basics of Income-tax and tax-saving so that she consciously incorporates tax planning in her financial routine once she starts earning. This will enable her to make informed choices and not indulge in last-minute tax-saving activities.
To Sum Up,
Based on how old your daughter is, you can teach her age-appropriate skills. Above all, lead by example. Children are very sharp and learn the best through observations. If she sees you as a financially disciplined individual, she will follow your steps and imbibe the same qualities. Discuss family finances with her and also take her opinion on important money matters. Expose her to a wide variety of financial products and tell her the pros and cons of each too. Also, share with her the money mistakes that you have made so that she can avoid these in the future. All these will make her look at money in a positive way and this is probably the best gift you can give your darling daughter.