Our relationship with money is defined by our childhood experiences of scarcity or abundance of money. And in this age when parents are actively shaping every aspect of the child’s life, they must give enough attention to inculcating the habit of saving money. While, it may seem that, doing so in childhood is unnecessary, keep in mind that one small habit of saving money will shape your child’s entire future. And hence, this Children’s Day, we are coming to you with some ways in which you can teach your child the Art of Saving.
Why is it important for your child to learn to save?
As we mentioned at the start, the way we treat and look at money is completely dependent on our childhood experiences. Let’s take an example. If someone was brought up in a relatively poor household with constant money issues, then for that person, Money will always be something to chase as they never had enough when they were growing up. Whereas, if someone saw an abundance of money in childhood, for them saving will never be a priority because they never had to save for anything.
A lot of Indians fall somewhere in the middle of these two extremes where we have enough to take care of essential expenses but not enough to spend on luxuries. Naturally, parents will compromise on their own needs but will not say ‘No’ to their children. There is a lot of focus on giving a world class education to the children in India but not enough focus on teaching the value of money. The most useful and practical skill you can pass on to children is Money Management. This will help them deal with all sorts of challenging situations in the future. Let’s look a how you can do so while making the process interesting.
Ways to teach your child Art of Saving
Teach your child to divide the pocket money in 3 S: Saving, Spending, and Sharing.
You may be giving some pocket money to your child for small expenses that he or she may be incurring. But now, tell her to create 3 baskets of that pocket money: One for Saving, one for Spending, and one for Sharing. By doing this, you can put a habit of limiting the expenses early on and also motivate them to give something back to society in form of Sharing. You can also incentivise them every time they save more than before. This will nudge them in the right direction to avoid unnecessary spending.
Show your children how compounding works.
Compounding is complex enough for an adult to understand, how can child wrap their head around it? Well, there are a lot of easy ways to teach the concept of compounding to a kid. You can go with the Classic Marshmallow test. Give your kid one marshmallow and tell them to hold on to it for one day. If they don’t eat it, reward them with one more Marshmallow. Now if they hold on to these two marshmallows for another day reward them with two marshmallows. And keep doing this.
This, in simple terms, is Delayed Gratification. This goes to show that if they don’t spend every penny you give them, they will earn a return on it and will end up with more money.
Open a Bank account in your child’s name and show them how it works.
Once the child knows about compounding, move on from a traditional piggy bank, and open their bank account. Teach them the basic functionalities of the bank and take them with you to deposit money in their account. This will build ownership and accountability in their mind about their money. Every quarter sit with them to show how their money has grown over time because they chose to save instead of spending everything.
Teach your child to wait for that one toy/gadget he wants desperately.
A lot of parents take pride in giving everything to the child the moment they ask for it. But this can do more harm than good. When a child gets everything he wants immediately, as an adult, he cannot wait for that one expensive item he wants to buy. And then the cycle of personal loans, credit card debts starts. Hence, a small habit of waiting before buying helps in building the right mindset for the child. This helps in two ways: You can tell them to wait and assess if buying that one thing is really necessary and it will teach them to save before for every large purchase instead of borrowing money from someone else.
Include Children while deciding your monthly budget
These days many children know the price of a phone, laptop, PS4 but not that of basic grocery items like bread, milk, vegetables, etc. While you are setting a monthly budget for household expenses include the children in this exercise. This will help them realize the cost of running a household and also teach them about how their parents take financial decisions that help save money. Understanding real-life money situations will make them realise the impact of small financial decisions on an overall budget.
These are just a few ways in which you can teach your kid to save money and be better at overall money management. By doing this, you as parents can create an entire generation of financially savvy investors who can have a better financial journey and in turn relatively stress-free life. Hence, This Children’s day, start with teaching your child how and why saving money is important.