"The marshmallow experiment" is one of the most interesting assessments of human behaviour. For the experiment, a group of children was given a choice. A marshmallow was placed in front of them. When the researcher was to leave the room, a child could either eat the marshmallow in front of them or wait until the researcher came back and would then be rewarded with a second marshmallow. Some children ate the marshmallow instantly, some fidgeted for a while and some waited for the researcher to come back. Interestingly, over the next 40 years, it was found that the children who could delay gratification were more successful across several metrics such as better social skills, better exam scores and better responses to stressful situations.
When it comes to finances, the ability to delay gratification is extremely useful. Small savings now can benefit us in the future. When we teach children that saving money instead of spending it immediately can pay off over time, we help them become financially responsible adults. Without money-related lessons, children may be more likely to make impulsive purchases to satisfy immediate wants, a habit that can hurt their finances in the long run.
Learning to manage money begins long before a child earns their first salary. The habits children develop at home can shape how they spend, save and make financial decisions as adults. Therefore, parents have an important role to play in building financial awareness from an early age. The process need not involve complicated discussions about taxes, investments or interest rates. Everyday decisions can offer children valuable lessons in handling money.
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1. Teach Children The Difference Between Wants And Needs
Children often want things because their friends have them or because they see them advertised. A new toy, an expensive pair of shoes or the latest gadget can quickly become a priority. Parents can use such situations to explain the difference between a need and a want. Food, school supplies and essential clothing are needs. Another toy or an upgrade to a perfectly functional gadget may be a want.
The idea is not to discourage children from spending money on things they enjoy. Instead, they should learn that money is limited and that every purchase involves a choice. When children understand this early, they are better equipped to prioritise expenses and avoid unnecessary spending later in life.
2. Encourage Them To Save Before They Spend
Saving becomes easier when children understand why they are doing it. Simply telling them not to spend their pocket money may not work. Giving them a goal can make the exercise more meaningful. For instance, if a child wants a toy that costs Rs 1,000, parents can help them work out how much they need to save each week to buy it. The child can then set aside a portion of their pocket money rather than spending the entire amount immediately.
This is where the lesson of the marshmallow experiment becomes relevant. Waiting may be difficult, but it can bring a greater reward. Over time, children can learn that saving is not just about giving up things they want. It is also about having the freedom to make bigger purchases without depending entirely on someone else.
3. Let Children Make Small Spending Decisions
Financial responsibility cannot develop if children never get to handle money themselves. Parents can begin by giving them a small, age-appropriate budget for a purchase or a weekly allowance.
Devyani Jaipuria, Pro Vice Chairperson of DPS International Gurugram and DPS Sector 45, told NDTV that practical experience is an important starting point. "Dealing with money is not a natural skill; it is something that can be taught. Parents often find it tough to have conversations about money with their children. In such a situation, it is helpful to start with small steps. Before moving on to complex concepts like taxes, we can give our children the opportunity to make small purchases. This allows them to learn about decision-making, autonomy and the limited nature of money," she said.
For example, a child given Rs 300 to spend on a school outing could decide how much to spend on food, activities and other purchases. Parents can discuss those choices afterwards without criticising every decision. Children may make mistakes. They might spend their entire allowance on the first day or regret buying something they did not really need. These experiences can become useful lessons, provided the consequences are manageable.
4. Explain Why Money Should Not Be A Taboo Subject
Many parents hesitate to discuss household finances with their children. Some worry that talking about money will expose them to adult concerns. Others may unintentionally make financial conversations sound uncomfortable or frightening. However, children observe how adults react to money. If every discussion about spending is accompanied by anxiety or secrecy, they may develop an unhealthy relationship with it.
Jaipuria cautions parents against creating a scarcity mindset in children. "If we talk about money or restrictions on money in a hushed tone, children pick up on that. They might develop a scarcity mindset. It is essential to be careful with money but a scarcity mindset will negatively affect children throughout life. Therefore, parents must try to be mindful of how they themselves approach financial matters," she said.
Parents need not share every detail of their income, savings or financial commitments. But they can explain everyday decisions in simple terms. For instance, they could tell a child that the family is saving for a holiday and is therefore avoiding unnecessary purchases this month. Such conversations help children understand that budgeting is a normal part of life, not something to fear.
5. Introduce Budgeting Through Everyday Activities
Budgeting may sound complicated to a young child, but the basic idea is easy to demonstrate. Parents can help children track their pocket money, record their spending and calculate how much remains. Older children can prepare a monthly budget covering transport, snacks, entertainment and savings.
Schools can reinforce these lessons through practical assignments. Students could be asked to prepare a sample household budget, calculate monthly expenses or compare the cost of different products.
According to Jaipuria, schools have an important role in building financial literacy alongside parents. "Parents alone cannot revolutionize financial literacy. Schools have an equally important role. Discussions about money increase familiarity with it. Moreover, schools can give assignments to children about calculating their monthly spending and maintaining budgets. Financial literacy is most effectively taught in practical ways. However, theoretical knowledge in schools can help introduce the concept to young students," she said.
6. Teach Them That Mistakes Are Part Of Learning
A child who spends all their pocket money too quickly may have to wait until the next allowance to buy something else. While parents may be tempted to step in immediately, rescuing children from every poor spending decision can prevent them from learning the consequences. This does not mean leaving children to deal with serious financial risks. The goal is to let them make small, age-appropriate mistakes while the stakes are low.
Parents can ask questions such as: Was the purchase worth the money? Would you make the same decision again? Could you have saved some of the amount for something more important?
Jaipuria stressed that parents must be patient as children learn to handle money. "It is important for us to remember that initially, children will make mistakes. It will take time for parents to trust them with money," she said. Allowing children to reflect on their decisions can help them become more confident and thoughtful. It also teaches them that financial discipline develops gradually rather than overnight.
7. Explain That Money Is Also About Responsibility
Saving and spending wisely are important, but financial education should go beyond personal gain. Children can also learn about sharing, donating and helping people in need. Parents might encourage them to set aside a small amount for a cause they care about or involve them in choosing how to contribute to a community initiative.
The aim is to show that money can serve purposes beyond buying things. It can also help people and support causes that matter to them. Jaipuria said this broader understanding should be part of how children learn about finances. "Lastly, the most important financial lesson that we must teach our children is that money can not only be used to fulfil our wishes and needs but also to contribute meaningfully to the world," she added.