4 Different Stages of Financial Freedom

"Too many people spend money they haven’t earned, to buy things they don’t want, to impress people that they don’t like."

-Will Rogers

We are taught various life skills that help us build a career and earn money but none that help us with what exactly to do to manage that money better. This is especially true for a generation that is earning more, consuming more often without understanding basic financial tenets.

A University of Cambridge study showed that money habits are established by the age of 7. It's harder to unlearn behaviour later in life making it essential to teach kids basic concepts, form the right habits early equipping for the future.

Stage 1 - Ages 3 - 5: Money - Earn, Save, Spend

Use a physical clear piggy bank to help the child handle money. Let them earn money by set tasks and then use it to exchange for privileges. You can also set up a store where they can redeem the money for a toy of their choice.

Stage 2 - Ages 6 - 10: Spend - Needs Vs Wants

Teach the kid that money is limited so it's important to be mindful of what they choose to do with it. Involve them in your shopping showing them how you choose what you buy and why. Give them money to spend in the grocery/ toy store on what they like, ensuring they stick to a predetermined budget.

Stage 3 - Ages 11 - 13: Consequences - Compound Interest & Credit Cards

You can open a bank account and let the child learn how to operate it by depositing and withdrawing money. This is the age to talk to them about interest and how it multiplies their money over time. Introduce credit card basics especially focussing on the need to pay it back every month.

Stage 4 - Ages 14 - 16: Creating Wealth - Investing

Get a prepaid card which will simulate credit card usage. Talk to them about stock market basics, and how companies function. Make a mock portfolio to understand how the stock market works.

Over time the child will master the basic fundamentals and make much better financial decisions growing up.

More Information:

Important Tips for Mutual Fund Investment

ICICI Prudential Freedom SIP

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Index Funds - Meaning, Purpose, How to Work, Risk, Returns