How to teach your child the basics of money management

Twelve-year-old Ritika is saving money to pay for her annual school trip. For a few months now she has been handing over whatever is left of her allowance at the end of the month to her mother Sangita.

However, she has only managed to save half the money she needs. Meanwhile, Sangeeta realises that this is an opportunity to teach her daughter a few things about money management.

Sangeeta can agree to plug the shortfall for her daughter but on the understanding that the money will have to be repaid. She can drive home the idea of cost of borrowing money by demanding a higher amount as repayment. Sangeeta should then help her daughter decide how and when the money will be repaid. For this, she should show Ritika how to budget by drawing up a statement of her income from allowances and expenses she meets out of it.

Sangeeta must allow her to decide the expenses she can cut back on so that she can save enough to repay what she has borrowed. She should also suggest chores that Ritika can do to earn some extra money. When doing this, she must make sure that the chores are appropriate for Ritika’s age. She must clearly explain what she expects to be done and pay according to the job. She has to let Ritika decide if she wants to take it up or not.


Sangeeta should explain the consequence of each option that they evaluate to find the required savings so that Ritika is able to see the connection between income, expenses and savings. Once she has helped Ritika set her budget, she should allow her to live by it and refrain from stepping in with monetary help. Ritika will learn from the experience only if she sees it as an important exercise. This will depend upon the seriousness shown by Sangeeta in setting the rules for the repayment. Sangeeta should encourage Ritika to continue even if there are lapses. Once the exercise is over, she can reward her daughter for a job well done.

Ritika has already seen the consequences of not saving systematically. By budgeting and living according to a plan, she will learn to be disciplined with her spending and saving. More importantly, she will learn about the cost and responsibility that come with borrowing. These are all important life skills and money habits that will stay with her for ever.

(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)