Wisdom often comes through proper coaching and this is precisely why you need to impart financial wisdom to your kids at the earliest. Children who learn about money early on in life are more confident about it later in life.

They handle all the money matters with greater ease and become financially independent and confident adults. Money management is a skill that needs to be learnt through training and observation.

As a result, you need to be the best coaches as well as role models for your kids to look up to.

Take a look at this article to know why financial literacy for kids is important and how to go about it.

How Teach your Kids Importance of Money?:


Teaching kids finance

It is important to have some financial lessons for kids. But simply making the child sit and listen to lectures about money management won’t help your case too much.

Children learn through practical experiments. This is why you must try to include financial literacy in their day-to-day schedules. From making them earn their allowance money to making them responsible for every penny they spend, financial knowledge is imparted through practice.


Tips to teach financial responsibility to your kids


Take a look at these 10 handy tips on how to teach financial responsibility to your children:


1) Introduce the concept of earning money:

It is a common practice for kids to receive money from their parents. You give your children allowance money, or you give them money on special occasions.

Try introducing the concept of earning money with your children. I suppose you pay your kids INR 2000 as their monthly allowance, break it up into small sums and ask them to earn the money.

If you have a small child, start with something like putting away the shoes in the shoe cabinet every time he comes back home. For this, he earns INR 500 a month.

For an older child, set up a chore like taking the garbage out each morning. For even older kids, set tasks such as washing the car every Sunday or walking the dog in the evening. Set fixed amounts of money as ‘salary’ for each chore and make your kids earn their allowance.


Doing so will make the children more responsible. They will also take daily chores more importantly. Then, the greatest benefit will be that they will start valuing money.

When they have to earn the money, they will understand its importance in a deeper and more detailed manner. They will stop assuming that money is just an object that comes from their parents’ wallets.


Know why it is important to start investing early. Read our article on What every Indian in their 20s should know about their money?


2) Commission, not allowance:

One of the best financial literacy activities for kids is to give them a commission. This can be done in a simple manner. If you are sending your kids to buy vegetables, tell them that they will get 10% of the money that comes back.

So if they take INR 200 with them and spend only INR 100, they get to keep INR 10 for themselves. This is an important financial concept and also a wonderful way to make your kids understand the value of money.

When they have this incentive, they will look for better bargains and offers. Else, they’ll be lackadaisical and just buy vegetables from the first shop they see. If they know they can earn some money out of the process, they will try to bargain, look around and also understand deals and discounts in a better way.



This is an activity that not only teaches your kids about money, it also makes them more responsible in general.

Kids, especially tweens and teenagers, are often laid back and least interested in household matters.

They may even end up thinking that money is free as they see their parents buying and arranging for all their needs, without them having to do anything.

Prevent your child from getting into this mindset by introducing the concept of commission and see a visible difference in them.



3) Make a jar for savings:


Rather than just handing over a currency note to your child when he’s going out or at the end of the month, encourage him to have a savings jar.

Each time he completes a task and earns an income or commission, ask him to put the money in the jar. Also, if he has any money left over after using it to buy his toys, etc, he can put the change back in the jar.


This will broadly introduce him to the banking system. You can then explain to him how money is saved and how it is taken out for expenses. This is a very simple, but highly effective way to teach financial literacy to young kids.



4) Give them three piggy banks:

When teaching kids finance, try giving them three piggy banks instead of just one. A piggy bank is a common household item that almost every kid has.

Kids enjoy putting their money in such piggy banks and taking them out when needed. Put three distinct labels on the three banks – SAVE, SPEND and GIVE.

Whenever your kids get a sum of money, whether it is the money you pay them for completing their designated tasks, as a commission or simply as a gift, they need to segregate the amount and divide them between the three banks.

The first bank, labeled ‘SAVE’ can be used to keep the money they want to save for large expenses such as buying a video game or going on a trip with their friends.

Each time they receive a sum of money, they need to keep aside a part of it to make the ‘SAVE’ fund grow. The next bank can be labeled as ‘SPEND’. Your child will want to make small expenses such as buying an ice-cream or a storybook.

For that, he can dip into ‘SPEND’ bank and take out the amount of money needed.

And finally, the third bank can be labeled as ‘GIVE’. The money in this bank can be used to buy presents for a friend’s birthday, to buy a Mother’s Day card, etc.


The concept of three piggy banks is an excellent way in which you can teach budgeting to your kids.

The kids will learn about dividing the money they have and also being judicious about spending.

They will get to know the value of money too and this will add a lot of value to your overall financial lesson plans.


Read this blog on How you can start investing from your very first salary.


5) Consider cash as gifts:

These days, a lot of the financial literacy curriculum for elementary schools include lessons that talk about the importance of cash as gifts. Holiday gifting, birthday gifting, etc can be easily replaced by cash.

There are several benefits of doing so. First and foremost, as parents, you are saved from the troubles of thinking about what to get the kids, spending time and effort shopping for the gifts and finally having to deal with the disappointment of your kids not liking the gifts!

Rather than giving gifts, switch to cash of the same value. If you decided to give your 8-year-old daughter a new bicycle worth INR 6000 for her birthday, give her the cash instead.

She can then divide the money among the three piggy banks, and consolidate her concept of budgeting. Next, handling money will definitely sharpen her math and calculation skills and finally, it will make her shrewd and responsible about the cash she has in hand.


As you can see, there are several benefits of giving cash as gifts to your kids. Also, encourage your friends and relatives to give your kids money instead of unnecessary gits during birthdays and other occasions.


6) Open a bank account

Once your child has understood the concept of saving and budgeting, proceed to open a bank account for them.

If you are looking for a true answer to how to explain money to a child, your best bet would be to open a bank account for them.

There are many, many benefits you get when opening a bank account for a child. Some of them are:


  • Understanding the rules –

    Involve your child in the process of opening the bank account. While doing so, explain the steps such as filling in the application form, reading the clauses, arranging the documents, signing forms, etc.Your child will find it exciting as will learn immensely from it as well.
  • Handling bank documents –

    After the account is opened, your child will receive the banking kit which will include the important banking documents such as the cheque book, ATM card, etc.You will have full authorisation over these documents, but tell your child about the way in which they work. Every time you go to the ATM, encourage your kid to insert the card, enter the PIN and count the money, while you supervise the entire process.This will make the child very organised and also very knowledgeable about the entire banking process.
  • Being responsible –

    The biggest advantage of doing this perhaps will be that your child will become financially responsible.He or she will also feel important and take pride in the fact that he or she has a bank account.This will build the base for a strong understanding of the banking system in the future.



These are all important financial lessons that your child can learn after having a bank account of his or her own.


Take this course on how you can manage you Relationships and Finances together


7) Introduce them to online payments:

Using your phone to scan a QR code to make daily payments has become very commonplace these days.

From the grocery store to the medical store, from restaurants to hospitals, everywhere online payment modes are now preferred over the traditional cash payments.

Your kids always observe what you do and you should grab this opportunity to teach them about electronic transactions.

E-money is a very pertinent topic in today’s day and age and every child should be aware of it. Coach your kids on how to properly use this payment mode. Also, tell about the possible frauds that can take place in the medium.

The same applies to online card payments and net-banking. If you’re sitting at home and paying your utility bills online, make your child sit next to you and teach them how it is done.

While doing so, you can also talk to them about how bills are generated. Explain to them hope savings and proper usage of the various materials can lead to cost-cutting.



Regular participation in such important financial matters will definitely make your child money-wise from a very young age.


8) Discuss family finances in their presence:

You need to discuss the family financial matters in front of your kids. Sadly, in many families, money is a taboo topic and hence it is never discussed in the presence of young kids.

This is unfortunate because the children also grow up with the understanding that money is evil and they never discuss it openly with their parents.

Parents are the first teachers of a child and so you should impart proper financial knowledge to your kids. Tell them that money isn’t evil. Inform them about the importance of money and about the need to be responsible for it.



Make money as a dinner-table conversation topic. Discuss the expenses, bills, etc with your spouse in a very matter-of-fact manner. This will make your kids realise that money is a part of life.

They will also learn that money matters can be discussed openly. By doing so, you pave the way for them to be confident about discussing all the challenges they face while handling finances later on in life.

Many young adults mess up their financial health, but with proper guidance can recover from these mistakes. Ensure your child always has the confidence to come to you when he or she is in a financially sticky situation.


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9) Make them aware of the debt:

A very important component of money is debt. Debt is a necessity, but it can turn into a huge liability. Your kids need to be told about this as early on in life as possible. Doing so will prevent them from misusing debt as a medium to escape their financial duties.

Children will eventually learn about debt, but if you teach them, they will learn it in the way you want them to. If you are happy with the way you are managing your own debt, just tell them about the model you follow.

If you yourself are not happy about the mistakes you made in regards to debt, tell them what to avoid.

A few good guidelines in this respect are:

  • Encourage them to budget. The less they spend, the less they have to pay.
  • Tell them to stay away from things that are not affordable. Encourage them to save enough before they get the item, instead of using credit to buy it.
  • You need to be a role model, so if you have debt, pay it off diligently. Share the EMI details with your kids and show them how you are paying the EMI each month and what you are achieving out of it.
  • If your child is slightly older, explain the concepts of credit and the interest rates associated with it.
  • Make a clear demarcation between the things that are NEEDED and the things that are WANTED. Need and want are two sides of the same coin, but play a huge role in maintaining a person’s debt and credit balance.



Make your children understand the concept of debt very clearly at an early age so that they are conscious about it and avoid piling on debt upon themselves as they grow older.

This is one of the most valuable financial lessons for kids.


10) Teach them to appreciate the money they have:

Many kids indulge in comparison. They will compare their clothes to the clothes their friends wear, or they will complain that their cousins have a better car than they do. You must discourage this habit and tell them to appreciate what they have.

Children are often used to receiving everything on a platter. Make your kids understand that money isn’t free and it isn’t just an object that is readily available in their mom or dad’s purse. They should learn to value what they have.

To do this, introduce the concept of saving. If they want something, ask them to earn it. Once that is done, they will understand how difficult it is to earn money and buy something.


Kids who value what they have and value money in general, grow up to be financially smart adults who are responsible for their savings and spendings. They are also content and happy in life because they know what they have is what they rightfully earned.


To put it in a nutshell

Children are very smart and they learn very well.

They are like sponges who soak up what they see and hear around them. Impart the best financial knowledge to them and make them financially aware and independent adults.

Finance for kids is not a difficult topic to navigate around – just keep all the points mentioned above in mind and you will be able to do it without any hassles whatsoever.

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