Financial literacy: How to explain personal finance to a 10-year-old?

Dev, a 10-year-old bundle of energy, cannot wait to visit the mall for his toy shopping, but his parents are worried about his recent spending spree. The last time they visited the mall, Dev’s insistence had his parents splurge a massive Rs. 10,000 on toys, video games, and junk food. To avoid such extravagant expenses and the negative effects of junk food on his health, his father decided to teach him an important lesson about health and wealth.

"Well, let me tell you a story that will help you understand how healthy means physically, mentally, and financially healthy," said Dev's father.

Dev's eyes sparkled with excitement as he looked at his dad. Clearly, story time was his absolute favourite.

Dev’s father had in mind his favourite story ‘Eidgaah’ written by Munshi Premchand. “Hamid was a 6-year-old boy. His parents had passed away, and he lived with his grandmother. They lived from hand to mouth. One day, on the morning of Eid, Hamid set out for Eidgah with other boys from the village. After the Namaaz, they all had planned to go to the nearby fair.

However, unlike his friends who dressed in new attire and had received Rs. 400-500 as Eidi for their toy shopping, swings, ice creams, etc., Hamid had no choice but to wear his old clothes and do with only three paise that he had received as Eidi (gifts given to youngsters from their elders) from his grandmother.

Dev listened intently as his father continued the story. "Hamid's friends spent their money on rides, candies, different delicacies, and toys. But his limited budget urged him to spend on things that would last longer. He looked all around, and as he was about to finish visiting all the shops, he reached a utensils seller. There, a pair of tongs got his eyes lit up. It was well within his budget. He could buy it for his grandmother, who often burned her fingers while cooking rotis. Moreover, when not in use for cooking, it could double up as a nice toy for him.”

"Wow!” exclaimed Dev.

"Yes," said Dev's father. "Hamid's friends did not understand the reason behind his purchase. However, he made a smart choice with his money, instead of feeling the pressure of enticing purchases from his friends. He did not waste it on something that would not last.”

Dev nodded, "I understand. So, what happened next?"

"Well," said Dev's mother, "Hamid gifted the tongs to his grandmother. At first, she scolded him for making the purchase rather than buying something to eat or drink at the fair. But then Hamid reminded her of how she burns her fingers daily, and she burst into tears and blessed him for his thoughtfulness."

Dev smiled. "That is such a sweet story. But how is this story related to health and wealth?"

"Well, Hamid made a smart choice with his money. He was aware of his and his family’s needs and made a smart choice. He did not let his friends pressure him into spending his money on something he did not need or something that would not last long. And in the end, he made his grandmother very happy.", Dev’s father said.

Dev nodded again. "I get it now. So, how should I manage my pocket money now?"

"Well," said Dev's father, "you can start by thinking about what you need and want. If you see something you like, ask yourself if it is something you really need or if it is just something you want for a short time. And if you decide you actually want it, try to find the best deal you can so you do not spend too much money."

"Another important thing to remember," said Dev's father, "is to save your money. You never know when you might need it for something important, like buying a new toy or a gift for someone special. If you save your money today, you will have more choices in the future. You can start by setting a goal. Decide what you want to save money for, and then figure out how much you need to save each week or month to reach your goal. You can even make a chart or a jar to help you keep track of your progress."

Dev grinned. "That sounds like fun! I want to save my money for a new video game. How much do I need to save each week?"

"Well," said Dev's father, “suppose the game costs Rs. 2000. If you want to save for it in a month, you will need to save Rs. 500 each week. If you want to save for it in two months, you will need to save Rs. 250 each week. It is up to you how quickly you want to reach your goal."

Dev nodded. "I think I will save for it in two months. That way, I can still buy some candy and toys sometimes."

"That is a good plan," said Dev's father. "And remember, it is okay to treat yourself sometimes. Just make sure it is not too much. Excess of anything is poison – even candies”, his father smiled.

Dev's parents were happy to see their son taking an interest in financial and personal wellbeing. As Dev grew older, he started realising that financial responsibility and good health habits were closely connected. Making smart choices with money, just like Hamid did, allowed him to prioritise his well-being and that of his family with routine checkups. He learned that by being financially responsible, he could afford healthier food and activities that would keep him strong and fit.

Dev's parents were proud of the responsible and financially disciplined young man he had become. Dev knew that he had the tools to achieve anything he wanted in his life, as long as he made informed decisions with limited resources and took care of his health. By understanding the connection between health and wealth, Dev was well on his way to securing a bright and prosperous future.

Note: The example is hypothetical

Akhilesh Gupta, Chief Investment Officer, Aviva India